-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DkfslXVhx+w+is516TTS7gterl2OxDWWEQNN9ZNATd+9NfrMc2Ka6VgqSlaFstvT Zgq7aSnVnpusN22FYwm70Q== 0001015769-00-000006.txt : 20000203 0001015769-00-000006.hdr.sgml : 20000203 ACCESSION NUMBER: 0001015769-00-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERMONT PURE HOLDINGS LTD CENTRAL INDEX KEY: 0000885040 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 061325376 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11254 FILM NUMBER: 516918 BUSINESS ADDRESS: STREET 1: ROUTE 66 PO BOX C STREET 2: CATAMOUNT INDUSTRIAL PARK CITY: RANDOLPH STATE: VT ZIP: 05060 BUSINESS PHONE: 8027283600 MAIL ADDRESS: STREET 1: ROUTE 66 P O BOX C STREET 2: CATAMOUNT INDUSTRIAL PARK CITY: RANDOLPH STATE: VT ZIP: 05060 FORMER COMPANY: FORMER CONFORMED NAME: NORTHERN SPRINGS CO INC DATE OF NAME CHANGE: 19930328 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 30, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to_______ Commission File Number 1-11254 VERMONT PURE HOLDINGS, LTD. (Exact name of business issuer in its charter) DELAWARE 06-1325376 (State or other jurisdiction of I.R.S. Employer Identification Number incorporation or organization) P.O. BOX C, ROUTE 66, CATAMOUNT INDUSTRIAL PARK, RANDOLPH, VERMONT 05060 (Address of principal executive offices and zip code) Issuer's telephone number, including area code: (802) 728-3600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.001 per share (Title of Class) Check whether the Issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is contained herein, and no disclosure will be contained, to the best of the Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [X] No [ ] The Issuer's revenues for the most recent fiscal year were $31,396,375. Based on the last sale at the close of business on January 15, 2000, the aggregate market value of the Issuer's common stock held by non-affiliates of the Issuer was approximately $ 30,171,820. The number of shares outstanding of the Issuer's Common Stock, $.001 par value, was 10,289,758 on January 19, 2000. Transitional Small Business Disclosure Format (check one): Yes [] No [X] ITEM 1. BUSINESS. The Company bottles, markets and distributes natural spring water under the "Vermont Pure" and "Hidden Spring" brands to the retail consumer and home/office markets. The Company sells its products primarily in New England, New York and New Jersey as well as Mid-Atlantic and Mid-Western states and the northern Virginia, Washington, D.C., Baltimore metropolitian area. INDUSTRY BACKGROUND Bottled water has been and continues to be a fast growing segment of the beverage industry. According to studies prepared by the Beverage Marketing Corporation, total bottled water consumption in the United States more than quadrupled from 1980 to 1998. Annual consumption increased from 2.8 gallons per capita in 1980 to 13.9 gallons per capita in 1998, and it is projected to reach 14.2 gallons per capita by the year 2000. Since 1991, bottled water per capita consumption has grown by over 44% or almost 4 gallons. Bottled water volume in the United States has grown significantly, increasing from the approximately 1.1 billion gallons in 1984 to approximately 3.8 billion gallons in 1998; from approximately $1.3 billion in sales in 1984 to over $4.3 billion in 1998. The studies show that bottled water is the fastest growing beverage category in the industry. The bottled water market may be divided into two distinct categories: non-sparkling (still or non-carbonated water) which accounts for approximately 91% of bottled water sales and sparkling (carbonated) which accounts for approximately 9% of bottled water sales. Non-sparkling water picked up over 98% of incremental gain since 1990. All of the Company's natural spring water products are in the non-sparkling category. The Company believes that the development and continued growth of bottled water markets since the early 1980's reflects growing public awareness of, and fears about, environmental pollution, including the effect on many municipal water sources of lead, carcinogenic chemical by-products from over-chlorination, toxic waste dumps, landfills and bacterial contamination. In addition, the Company believes that consumers perceive bottled water as a healthy and refreshing beverage alternative to beer, liquor, wine, soft drinks, coffee, tea, juices and juice products. The Company anticipates that sales of bottled water will continue to grow as increased health and fitness consciousness, alcohol moderation and caffeine and sodium avoidance continue to influence consumer choice. COMPANY BACKGROUND Incorporated in Delaware in 1990, the Company acquired the business of Vermont's Hidden Spring, Inc., a local Vermont bottled water company, in July 1991. The assets included one spring on 1.7 acres of land, a 10,000 square foot office facility and bottling plant in Randolph, Vermont and the "Vermont's Hidden Spring" brand. Since that acquisition, the Company has acquired additional springs on approximately 65 acres of land and built a second office, bottling and warehouse facility of 32,000 square feet in Randolph, Vermont. This facility is currently being expanded to approximately 71,000 square feet. Immediately after the acquisition of the business of Vermont's Hidden Spring, Inc., the Company developed a new brand under the label, "Vermont Pure." The Vermont Pure brand is positioned as a premium brand for the general consumer market with a wide distribution in supermarkets, convenience stores and other consumer outlets, as well as in home and office markets. The Company has focused on distributing the Vermont Pure brand in the New England, New York, New Jersey and Mid-Atlantic regions since 1991, and more recently the Company has expanded its distribution into the Northern Virginia - Washington, D.C. - Baltimore metropolitan and the Northern Mid-Western markets. The Company retained its original product tradename, "Vermont's Hidden Spring," and subsequently modified it to "Hidden Spring". The Company currently markets this brand to essentially the same types of markets as the Vermont Pure brand. It also actively uses trademarks and brands that it has acquired through acquisitions including Happy Spring Water (TM), Excelsior Spring Water (TM), Vermont Natural's(TM) and Coffee Time of Vermont. The Company considers its trademarks, trade names and brand identities to be very important to its competitive position, and defends its brands vigorously. See "Competition" below. Because the home/office bottled water distribution market is a fragmented yet well established part of the bottled water market and generates margins and cash flows that compare favorably with consumer bottled water, the Company has since the mid-1990's sought to expand home/office distribution in its home market of Vermont and more recently developed and expanded its share of the Northern New York and Northern New England home/office markets. In May 1996, the Company through its wholly owned subsidiary, Vermont Pure Springs Inc. ("Springs"), purchased certain assets of the spring water division of Happy Ice Corporation used in the bottling, sale and distribution of spring water in three and five gallon bottles, the sale of a variety of coffee, tea and hot beverage supplies for home and office customers. In addition, Springs assumed a lease for a distribution warehouse in Buffalo, New York. The market and distribution area for these products is in Buffalo, Syracuse, Rochester and Western New York. The Company has continued a strategy of incremental growth by acquisition in fiscal 1997, 1998, and 1999. In March 1997, the Company purchased certain assets and assumed selected liabilities of the home/office business of Greatwater Refreshment Services, Inc., based in upstate New York. In July 1997, the Company acquired A.M. Fridays, Inc., a home/office distributor of bottled water, coffee, and vending services, with warehouse distribution based in Manchester, New Hampshire and Shelton, Connecticut. The Company believes this acquisition has facilitated its expansion into northern Massachusetts. In August 1997, the Company purchased the stock of Excelsior Springs Water Company, Inc., a home and commercial bottled water and coffee distributor in the Albany, Saratoga Springs and Plattsburgh, New York markets. During fiscal 1998, the Company acquired the worldwide trademark and distribution rights for AKVA Icelandic bottled spring water, absorbing the United States distribution of AKVA into its existing operations in December 1997. In January 1998, the Company acquired the assets of Vermont Coffee Time, Inc. of Williston, Vermont. Vermont Coffee Time, which had total sales of $1.5 million in 1997, delivers Green Mountain Coffee and spring water to offices and homes in Vermont and parts of upstate New York and New Hampshire. In May, Vermont Pure acquired the home and office delivery assets of Perrier Group of America in the Albany, New York market. Perrier's sales in this market at the time of the acquisition were about $2 million annually. The Company also completed four small acquisitions of home and office customer bases with combined sales of about $500,000 annually. Continuing with this strategy during fiscal 1999, the Company acquired the stock of Adirondack Coffee Services, Inc., which had 1998 annual sales of approximately $1.5 million. Adirondack Coffee serviced home and office customers primarily in the Albany, New York and Rutland, Vermont areas. During fiscal 1999, the Company also completed 8 small acquisitions of home and office customer bases with sales aggregating at approximately $800,000. In all cases, the acquisitions of the home and office businesses were absorbed into the Company's existing operations in the respective market area. To date, the Company has not experienced significant problems in integrating its acquired businesses with its existing operations. However, the acquisition of new businesses may require management to devote time and energy to the successful, efficient and timely integration of operations, labor forces, administrative systems (including accounting practices and procedures and management information systems), and varying corporate cultures. Although the Company does not expect to grow by acquisition faster than its ability to integrate new businesses with existing operations, there can be no assurance that management will not find it necessary to devote unanticipated time and effort to integrating new businesses, with possible adverse effects on the Company's business as a whole. DESCRIPTION OF WATER SOURCES The primary sources of the natural spring water used by the Company are springs located at the Company's properties in Randolph and Tinmouth, Vermont, and a spring owned by a third party in Stockbridge, Vermont, that is subject to a water supply contract in favor of the Company. Percolation through the earth's surface is nature's best filter of water. The Company believes that the exceptionally long percolation period of natural spring water in the central Vermont area and in particular in the area of its springs assures a high level of purity. Moreover, the long percolation period permits the water to become mineralized and Ph balanced. Management believes that the age and extended percolation period of its natural spring water provides the natural spring water with certain distinct attributes: a purer water; noteworthy mineral characteristics including the fact that the water is sodium free and has a naturally balanced Ph; and a light, refreshing taste. In addition to drawing water from its own springs, the Company purchases bulk quantities of water from natural springs owned or operated by non-affiliated entities. All of such springs are approved sources for natural spring water. See "Government Regulation". During fiscal 1999 and 1998, purchases of spring water from a non-affiliated source in Vermont amounted to approximately half of the Company's usage of spring water. The Company is actively exploring the acquisition of additional spring sources that would enable it to reduce its reliance on third-party springs. The Company has for several years purchased spring water from an unaffiliated source in Stockbridge, Vermont. Until late 1999, the Company had no contract with respect to this source. Commencing in November 1999, the Company has obtained a 50-year water supply contract to purchase, on a first priority basis, up to 5,000,000 gallons per month from the spring owner. For additional information, see Item 5, "Market for Common Equity and Related Stockholder Matters." Because this amount is well in excess of the Company's current needs and within the apparent capacity of the spring, the Company believes it can readily meet its bulk water supply needs for the foreseeable future. However, if this supplier's spring source were no longer an approved source for natural spring water by reason of contamination or otherwise, then, unless the Company could find adequate amounts of bulk spring water from other suppliers or sources, the Company's business would likely be materially adversely affected by an interruption in supply. The Company believes that it could find adequate supplies of bulk spring water from other sources, but that it might suffer inventory shortages or inefficiencies, such as increased purchase or transport costs, in obtaining such supplies. The Company is highly dependent on the integrity and existence of the natural springs from which it obtains its spring water. Natural occurrences beyond the control of the Company such as drought, earthquake or other geological changes, a change in the chemical or mineral content or purity of the water or environmental pollution may affect the amount and quality of the water emanating from the springs the Company uses. Any such occurrence may have an adverse impact on the business of the Company. PRODUCTS The Company's natural spring water is sold under the Vermont Pure and Hidden Spring brands and is packaged in various bottle sizes ranging from 8 ounces to 1.5 liters and is sold in single units and plastic rings of six and eight bottles. These are sold in twelve pack and twenty four pack cases, depending on the market to which the product is targeted. In recent years, sales indicate that the most preferred container sizes are "single serve" sizes" - 750 ml and .5 liter. The Company uses a sports cap on various product sizes to create interest and add extra value. Consumer sizes are bottled in clear PET (polyethylene terephthalate) recyclable bottles which is perceived in the marketplace as a high quality package. The home/office natural spring water products are sold in three and five gallon bottles. The Company rents water coolers to dispense the bottled water from. These coolers are available in cold, warm and/or hot temperature configurations. In conjunction with the home/office accounts, the Company also distributes a variety of coffee, tea and other hot beverage products and related supplies. The Company rents or supplies multi burner coffee machines to customers. In addition, the Company supplies whole beans and coffee grinders for fresh ground coffee as well as cappuccino machines to restaurants. MARKETING The Company generally markets its Vermont Pure products as "premium" domestic bottled water products. A premium bottled water product is distinguished from other available bottled water products by being packaged in small portable containers, typically PET recyclable bottles, and by being classified as a natural spring water by the Food and Drug Administration ("FDA"). The Company prices its Vermont Pure brand competitive to other domestic premium brands but lower than imported premium water products. The Hidden Spring products are similarly packaged and sold to retail grocery and convenience markets. The Company markets its products by highlighting the unique characteristics of the Company's water, namely a natural spring source, purity, mineral composition and desirable taste. The Company also uses the image of the State of Vermont in its marketing and brand identification. The Company believes that products originating from Vermont have the general reputation for being pure, wholesome, trustworthy and natural. The State of Vermont also is nationally recognized as an environmentally clean and health conscious state with strict regulations protecting its natural resources. The Company's premium products are bottled in sleek, clear plastic PET recyclable bottles. The Company believes that this is the "ultimate" consumer bottle package because it is clean, clear, light and recyclable and generally is perceived by consumers to be upscale. The Company believes that the high quality packaging of its products enhances their image as premium domestic bottled water products. The Company has focused its consumer product marketing and sales activities in the eastern and mid-western United States. The Company currently distributes its products in the New England, New York, New Jersey, Mid-Atlantic and Northern Mid-Western states and the Northern Virginia - Washington, D.C. - Baltimore metropolitan area. The Company's home/office sales are generated and serviced using directly operated facilities, Company employees and vehicles as well as Company designated distributors. The Company generally uses the Vermont Pure brand for this market and maintains distribution routes in its various market areas. SLOTTING FEES For the Company to achieve placement of its retail consumer products in certain supermarket chains and individual supermarket stores, it may sometimes be necessary for the Company to purchase shelf space by paying slotting fees. Typically, supermarket chains and prominent local supermarkets impose these charges as a one time payment before the products are permitted in the store or chain. Slotting fees are less frequently imposed by other types of retail outlets such as individual convenience stores and delicatessens. The fees are negotiated on an individual basis. As the Company has become better established and its brands have achieved greater recognition, the Company has become less dependent on slotting fees to gain space. Nevertheless, like many producers of food products, the Company pays slotting fees in some cases, and expects to continue to do so. ADVERTISING AND PROMOTION The Company advertises its products primarily through television and radio media. In connection with this advertising, the Company uses point of sale, in-store displays, price promotions, store coupons, free-standing inserts and cooperative and trade advertising. The Company has also actively promoted its products through sponsorship of various organizations and sporting events. In recent years, the Company has sponsored professional golf and tennis events, as well as major ski areas and sports arenas, and various charitable and cultural organizations, such as Vermont Special Olympics and the Vermont Symphony Orchestra. DISTRIBUTION AND SALES The Company uses major beverage distributors for the distribution of its consumer products, and distributes its home/office products directly. Using distributors is typical in the beverage industry as an efficient use of capital for maximum market penetration. Beverage distributors purchase the products of many companies and then wholesale them to retail chains or make bulk retail sales. Distributors generally have established relationships with local retail outlets for beverage products and facilitate obtaining shelf space. Occasionally, the Company sells its products directly to grocery store chains. The Company distributes its Vermont Pure brand with a number of distributors. The Company is obligated to supply the distributors with their requirements of the Vermont Pure brand at established prices. The Company made a significant change to its distribution network effective in April 1999 when it terminated its relationship with Coca-Cola Enterprises, Inc. ("CCE"), a long-time distributor. CCE had been a significant customer of the Company for several years, with sales to CCE, expressed as a percentage of total sales, equal to 16%, 30% and 31% in fiscal years 1999, 1998 and 1997, respectively. Early in calendar 1999, the Company concluded that it was highly likely that Coca Cola USA would market its own brand of purified water in the relatively near future, and that CCE would probably distribute that brand. To alleviate the uncertainty and disruption to its distribution network that would accompany any ill-timed decision by CCE not to distribute Vermont Pure water, the Company decided to terminate its relationship with CCE in early spring of 1999. This provided the Company with an opportunity to establish alternative distribution systems in areas served by CCE, and to do so before the warm summer months when sales volumes rise sharply. Coca Cola USA subsequently introduced Dasani, Coca Cola's brand of purified water, which is distributed by CCE. Although sales of the Company's retail PET products declined in fiscal year 1999, in part due to distribution factors, management believes that the timing of its decision to terminate the Company's relationship with CCE helped to minimize the disruption and inefficiencies that inevitably follow a significant change in distribution. Although it was necessary for the Company to use several smaller distributors to replace CCE, the Company believes that it has taken steps to solidify and improve its distribution system and that it is in a better position than if it had left the timing of the matter to CCE. The continuing growth of the Company's home and office business also lessened the adverse effects of changing this part of the Company's retail PET distribution system. As discussed elsewhere, the Company is pursuing an acquisition strategy to purchase independent home and office bottlers and distributors in New England and New York State. Management's decision to expand in this market has been driven by, among other things, attractive margins and good cash flows from equipment rentals, as well as by the advantages of product diversification, such as diminished reliance on a single segment of the market. Moreover, the Vermont Pure brand in the multi gallon or home/office setting affords consumers an opportunity to sample the product, which the Company believes augments retail sales and contributes to brand awareness. The Company markets and distributes its water directly to homes and offices in five and three gallon reusable bottles. These products are distributed from Company operated warehouses and vehicles by employees throughout Northern New York and New England. Deliveries are made to customers on a regularly scheduled basis. Water coolers, coffee brewers, coffee and other products related to these lines are also distributed on the routes. The Company also sells its Hidden Spring consumer products on these lines to homes, offices and retail outlets. The Company utilizes a network of outside distributors to distribute the Company's water and ancillary products. The Company does not own any of the assets or employ any of the personnel involved with the distribution of the water in these areas. The Company ships its consumer products from its bottling facilities in Randolph, Vermont by common carrier either directly to beverage distributors, retail outlets or to authorized warehouses for later distribution to beverage distributors and retail outlets. Storage is charged on a per pallet basis and transportation costs vary according to the distance of the shipment. The Company employs a sales force of 27 persons for retail and home/office sales. The Company's sales personnel act as liaison between distributors/customers and the Company for ordering product, facilitating distribution, servicing retail outlets, home/office customers and warehouse distribution. Sales personnel actively seek to expand the number of retail outlets, distributors, offices, and homes purchasing the Company's products. CONTRACT PACKAGING The Company performs private label contract packaging of its natural spring water for distributors of other brands of bottled water and grocery store chains for house brands. The Company also packs five gallon home and office containers for third parties. Contract packaging is very price competitive and typically is performed under short-term arrangements. The Company seeks opportunities for contract packaging for a variety of reasons, including the fact that it develops favorable relationships with retail chains. SUPPLIES The Company does not manufacture any of the bottles or packaging in which its products are sold. The Company purchases all of its PET bottles and the plastic caps used thereon from major plastic bottle vendors. Because of the intense demand for this form of bottle, from time to time the Company has experienced delays in obtaining an adequate number of bottles. Moreover, in 1994 and 1995, the market for plastic bottles and corrugated packaging was volatile and had an adverse impact on the cost of goods sold at that time. In 1996, resin prices that dictate the cost of PET plastic dropped and industry capacity increased. Consequently, the Company's cost for plastic bottles dropped significantly and remained stable in 1997. During this period, the Company negotiated a three-year contract with a bottle supplier for all of its needs. In 1998, this agreement was extended through 2001. During 1999, the Company experienced two price increases due to the cost of resin rising. The bottles supplied under the contract for many of its raw materials are priced by reference to the market price of resin. Notwithstanding its contracts, the Company may experience market instability with respect to raw material supplies. No assurance can be given that the Company will be able to obtain the supplies it requires on a timely basis or that the Company will be able to obtain them at prices that allow it to maintain the profit margin it has had in the past. Any raw material disruption or price increase may result in an adverse impact on the financial condition and prospects for the Company. For information about the Company's spring water sources, see "Description of Water Sources". SEASONALITY The Company's business is seasonal, with the consumer portion of the business being somewhat more seasonal than the home and office market. The period from June to September represents the peak period for sales and revenues due to increased consumption of beverages during the summer months in the Company's core Northeastern United States market. COMPETITION Management believes that bottled natural spring water historically has been a regional business in the United States. As a result there are numerous operating springs within the United States producing a large number of branded products which are offered in local supermarkets and other retail outlets in the smaller consumer sizes and sold to the home and office markets in one gallon and multiple gallon containers. More recently, the trend has been toward the development of national brands of natural spring water. Dominating the national market are The Perrier Group of America, Inc. (whose brands include Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring Water, Great Bear, Deer Park, Ice Mountain and Zephyrhills Natural Spring Water) and Great Brands of Europe (whose brands include Evian Natural Spring Water and Dannon Natural Spring Water). Perrier is owned by Nestle. In addition, there are many other strong regional brands, such as Naya, Crystal Geyser and Sparkletts. Coca-Cola Bottling Company is distributing its own brand of purified water under the Dasani trademark. The Pepsi-Cola Company distributes a brand of bottled spring water under the Avalon label and is now selling a purified drinking water under the Aquafina trademark. Consumers may also choose home water purification systems in lieu of drinking spring water, or may choose to drink beverages other than spring waters, such as soft drinks, coffee, juices, beer and wine. Many of the Company's regional and national competitors are well established companies with recognized brand names and consumer loyalty. Moreover, these companies, as compared to Vermont Pure, have substantially greater financial resources and have established market positions, proprietary trademarks, distribution networks and bottling facilities. The Company also faces competition from the fast growing "private label" and contract packaged brands of natural spring water. These brands compete on a low-price basis and often occupy premium shelf space because they are retailer brands (also see "Contract Packaging"). Additionally, the Company faces competition from Canadian spring waters which price their product aggressively due to the exchange rate differential between the Canadian and U.S. dollars. The home and office distribution markets include a number of national companies, such as Culligan, Perrier (Poland Spring, Great Bear and Deer Park), as well as Suntory Group (Belmont Springs). There are also local well established bottled water operators that compete with the Company. The Company competes on the basis of pricing, association with the image of the State of Vermont, attractive packaging, customer service in the home/office business, and brand recognition. The Company considers its trademarks, trade names and brand identities to be very important to its competitive position, and defends its brands vigorously. TRADEMARKS The Company sells its natural spring water products under the trade names Vermont Pure Natural Spring Water, Hidden Spring, Excelsior Spring Water, Happy Spring Water and Vermont Naturals. The Company's labels which include these trade names are registered with the United States Patent and Trademark Office. GOVERNMENT REGULATION The Federal Food and Drug Administration ("FDA") regulates bottled water as a "food." Accordingly, the Company's bottled water must meet FDA requirements of safety for human consumption, of processing and distribution under sanitary conditions and of production in accordance with the FDA "good manufacturing practices." To assure the safety of bottled water, the FDA has established quality standards that address the substances that may be present in water which may be harmful to human health as well as substances that affect the smell, color and taste of water. These quality standards also require public notification whenever the microbiological, physical, chemical or radiological quality of bottled water falls below standard. The labels affixed to bottles and other packaging of the water are subject to FDA restrictions on health and nutritional claims for foods under the Fair Packaging and Labeling Act. In addition all drinking water must meet Environmental Protection Agency standards established under the Safe Drinking Water Act for mineral and chemical concentration and drinking water quality and treatment which are enforced by the FDA. The Company is subject to the food labeling regulations required by the Nutritional Labeling and Education Act of 1990. The regulations, which are administered by the Secretary of Health and Human Services through the FDA, require all companies which offer food for sale and have annual gross sales of more than $500,000, including the Company, to place uniform labels disclosing the amounts of specified nutrients on all food products intended for human consumption and offered for sale. The act contains exemptions and modifications of labeling requirements for certain types of food products, such as those served in restaurants and other institutions, bulk foods, foods in small packages and foods containing insignificant amounts of nutrients. The act also establishes the circumstances in which companies may place nutrient content claims or health claims on labels. The Company believes it is in substantial compliance with these regulations. The Company is subject to periodic, unannounced inspections by the FDA. Upon inspection, the Company must be in compliance with all aspects of the quality standards and good manufacturing practices for bottled water, the Fair Packaging and Labeling Act, and all other applicable regulations that are incorporated in the FDA quality standards. In May 1996, new FDA regulations became effective which redefined the standards for the identification and quality of bottled water. The Company believes that it meets the current regulations of the FDA, including the classification as spring water. The Company also must meet state regulations in a variety of areas. The Department of Health of the State of Vermont regulates water products for purity, safety and labeling claims. Bottled water sold in Vermont must originate from an "approved source." The water source must be inspected and the water sampled, analyzed and found to be of safe and wholesome quality. The water and the source of the water is subject to an annual "compliance monitoring test" by the State of Vermont. In addition the Company's bottling facilities are inspected by the Department of Health of the State of Vermont. The Company's product labels are subject to state regulation (in addition to the federal requirements) in each state where the water products are sold. These regulations set standards for the information that must be provided and the basis on which any therapeutic claims for water may be made. The Company has received approval for its Vermont Pure and its Hidden Spring brands from 49 states. The bottled water industry has a comprehensive program of self-regulation. The Company is a member of the International Bottled Water Association ("IBWA"). As a member of the IBWA, the Company's facilities are inspected annually by an independent laboratory, the National Sanitation Foundation ("NSF"). By means of unannounced NSF inspections, IBWA members are evaluated on their compliance with the FDA regulations and the association's performance requirements which in certain respects are more stringent than those of the federal and various state regulations. EMPLOYEES As of January 19, 2000, the Company had 179 full-time employees and 12 part-time employees. None of the employees belongs to a labor union. The Company believes that its relations with its employees are good. The Company relies to a great degree on the combined efforts of its executive officers, Timothy G. Fallon, its President and Chief Executive Officer, and Bruce S. MacDonald, its Chief Financial Officer and Treasurer, for its day to day management and strategic direction. Both of these officers have signed employment agreements with the Company that extend to November 1, 2001. ITEM 2. DESCRIPTION OF PROPERTY. The Company owns office, bottling and warehouse properties and natural springs in Randolph, Vermont. It also owns a spring and recharge acreage in Sharon Springs, New York. The Company currently does not intend to use this spring. The Company rents on a monthly basis an office in an office suite in While Plains, New York. The Company rents warehouse space in different locations from time to time for the purpose of the trans-shipment of its bottled water products to its distributors and retailers. This space is rented on a per pallet basis. As part of the Company's acquisitions in 1997, 1998 and 1999, it has entered into or assumed various lease agreements for properties used as distribution points and office space for it's home and office service. The following table summarizes these arrangements: LOCATION LEASE EXPIRATION SQ. FT. ANNUAL RENT - -------------- ---------------- ------- ----------- Williston, VT .......... July, 2003 8,500 $ 53,380 Wilmington, MA ......... October, 2003 10,670 $ 82,159 Rochester, NY .......... July, 2003 8,000 $ 24,000 Buffalo, NY ............ October, 2000 6,760 $ 44,616 Syracuse, NY ........... April, 2000 3,500 $ 25,200 Halfmoon, NY ........... April, 2008 22,500 $118,125 Plattsburgh, NY ........ August, 2004 3,640 $ 20,568 Shelton, CT ............ month to month 5,200 $ 32,422 White River Junction, Vt March, 2004 3,275 $ 16,211 The Company is currently expanding its PET bottling plant to accommodate increased bottling operations and to gain the efficiencies of internal warehouse space. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". ITEM 3. LEGAL PROCEEDINGS. In connection with its purchase of certain loan documents, the Company, as creditor-plaintiff, filed three lawsuits during the first quarter of fiscal year 2000 to enforce its rights under those loan documents. These suits were settled favorably to the Company on December 1, 1999. For additional information, see Item 5, "Market for Common Equity and Related Stockholder Matters." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock is traded on the American Stock Exchange ("AMEX") under the symbols "VPS". The table below indicates the range of the high and low prices of the Common Stock as reported by AMEX. Prior to May 18, 1999 the Company traded its common stock on the Nasdaq SmallCap Market under the symbols "VPUR". HIGH LOW ------- -------- FISCAL YEAR ENDED OCTOBER 25, 1997 - ------------------------------------- First Quarter ................................... 3 1/8 1 11/16 Second Quarter .................................. 2 13/16 1 7/8 Third Quarter ................................... 2 1/2 1 3/4 Fourth Quarter .................................. 4 3/4 2 1/8 FISCAL YEAR ENDED OCTOBER 31, 1998 - ------------------------------------- First Quarter ................................... 4 9/16 3 13/16 Second Quarter .................................. 5 7/16 3 5/8 Third Quarter ................................... 4 7/8 3 7/8 Fourth Quarter .................................. 4 1/2 2 3/4 FISCAL YEAR ENDED OCTOBER 30, 1999 - ------------------------------------- First Quarter ..................................... 4 13/16 3 1/8 Second Quarter .................................... 4 1/2 3 3/16 Third Quarter ..................................... 3 7/8 3 3/16 Fourth Quarter .................................... 3 5/8 2 5/8 The last reported sale price of the Common Stock on the American Stock Exchange on January 19, 2000 was $2.9375. The Company had 216 record owners of the Common Stock as of January 19, 2000. As of that date, the Company believes that there were in excess of 1,500 beneficial holders of the Common Stock. No dividends have been declared or paid to date on the Company's common stock, and the Company does not anticipate paying dividends in the foreseeable future. The Company has adopted a policy of cash preservation for future use in the business. SECURITIES SOLD AND EXEMPTION FROM REGISTRATION CLAIMED. On October 1, 1999, the Company issued its $975,000 non-interest bearing Convertible Debenture due September 30, 2001 (the "Debenture") to Marcon Capital Corporation ("Marcon"). The transaction was exempt from registration under the Securities Act of 1933 as a private placement under Section 4(2) thereof. CONSIDERATION. In consideration for the issuance of the Debenture, Marcon transferred to the Company all of its rights under various loan documents, including related collateral. The loan documents pertained to a loan by Marcon to an affiliate (the "Affiliate") of the owner (the "Spring Owner") of the Company's largest spring water source. The collateral included a mortgage and security interests on the spring site and associated equipment; a guaranty by the Spring Owner in favor of Marcon; a water supply contract in favor of Marcon; the right to buy an equity ownership position in the Affiliate; and other rights. As a result of this transaction, the Company became a creditor of the Spring Owner and the Affiliate in the amount of approximately $905,000. The purpose of the transaction was to minimize the possible adverse effect on the Company's water supply due to defaults by the Spring Owner and the Affiliate in their obligations to Marcon. Following its purchase of Marcon's position, the Company, as creditor, attempted to negotiate with the Spring Owner and the Affiliate to resolve the matter. When that failed, the Company advised the Spring Owner and the Affiliate that it was exercising its rights to take possession of the water supply contract and acquire an equity interest in the Affiliate. The Spring Owner and the Affiliate then attempted to repudiate the Company's rights under the water supply contract. The Company filed three different lawsuits to enforce its rights: a foreclosure action (Vermont Pure Holdings, Ltd. v. Pristine Mountain Springs, Inc., et al., Windsor County Superior Court, Vermont, filed October 22, 1999) and actions for equitable and injunctive relief (Vermont Pure Holdings, Ltd. v. Pristine Mountain Springs, Inc., Amsource LLC and Ronald Colton, Windsor County Superior Court, Vermont, filed November 17, 1999, and Vermont Pure Holdings, Ltd. v. Pristine Mountain Springs, Inc., Amsource LLC, Ronald Colton, et al., Sullivan County Superior Court, New Hampshire, filed November 16, 1999). These matters were settled by arbitration on December 1, 1999. As part of the settlement, the Spring Owner, the Affiliate and others paid to the Company $1,270,000 and acknowledged the Company's rights under the amended water supply contract and right of first refusal to purchase the spring site. As amended, the 50-year water supply contract provides that the Company and the Affiliate shall each have the right to purchase, on a first priority basis, up to 5,000,000 gallons per month from the Spring Owner. TERMS OF CONVERSION OR EXERCISE. The Debenture may not be prepaid, redeemed or repurchased without the prior written consent of the holder. The holder may convert the Debenture at any time into shares of the Company's Common Stock at a conversion price equal to 85% of the average closing price of the Common Stock during the 20 business days prior to conversion. If the Debenture is not sooner converted, it shall, subject to the satisfaction of various conditions, be automatically converted into Common Stock on the maturity date, September 30, 2001. ITEM 6. SELECTED FINANCIAL DATA
Fiscal Years Ended October 30, October 31, October 27, October 26, October 28, 1999 1998 1997 1996 1995 Net sales ................................. $ 31,396,375 $ 29,169,185 $ 17,685,442 $ 11,878,829 $ 8,517,470 Net Income (loss) ......................... $ 3,398,641 $ 2,858,750 $ 1,067,395 $ (1,267,331) $ (2,804,101) Net Income (loss) per share - diluted ..... $ .31 $ .26 $ .11 $ (.13) $ (.30) Total assets .............................. $ 33,834,230 $ 26,173,503 $ 16,546,766 $ 9,971,394 $ 9,266,544 Long term obligations ..................... $ 13,733,268 $ 10,422,803 $ 5,739,889 $ 2,878,353 $ 1,882,154
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING STATEMENTS When used in the Form 10-K and in future filings by the Company with the Securities and Exchange Commission, the words or phrases "will likely result" and "the Company expects", "will continue", "is anticipated", "estimated", "project", or "outlook" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. RESULTS OF OPERATIONS YEAR ENDED OCTOBER 30, 1999 COMPARED TO YEAR ENDED OCTOBER 31, 1998 Sales for 1999 were $31,396,000 compared to $29,169,000 for 1998, an increase of $2,227,000 or 8%. 1999 sales attributable to acquisitions made during the year were $2,137,000, which represented 7 percentage points of the overall 8 point increase. Excluding revenues attributable to acquisitions, sales for 1999 net of acquisitions were $29,259,000. The Company's revenue growth trend was slowed primarily due to the Company terminating its distribution agreement with its largest distributor which resulted in some loss of sales revenue as new distributors were brought on line. For discussion of this action, See "Business - Marketing Distribution and Sales." The Company's 1 percentage point (1999 over 1998) increase in sales, net of acquisitions, was accounted for by increases in the following distribution channels: 6 points for Hidden Spring, 5 points for private label and 6 points for home/office. These were mostly offset by the 16 point decrease in retail size Vermont Pure, a direct result of the change in distribution networks. Due to the fact that the Company operates on a "52-53 week" reporting year, 1999 had 52 weeks of sales while 1998 had 53 weeks of sales. Sales of the Company's retail-size products were $15,996,000 in 1999, a decrease of 8% compared to 1998, when sales of these products were $17,455,000. The sales decline is partially attributable to the termination of the Company's agreement with its largest distributor and deccreased average selling prices. Year to year average selling price per case was down 28%. Vermont Pure brand sales decreased 34% compared to 1998. Hidden Spring brand sales were up 89% for the year, due to continued growth through market expansion in secondary distribution channels. During the year, the Company increased the number of private label customers that it packs for, resulting in an 83% increase in sales for these products. Sales for the home and office delivery category of the business increased in 1999 to $15,400,000 from $11,714,000 in 1998, an increase of $3,686,000 or 31%. In addition to internal growth, the Company continued to expand its home and office distribution through acquisitions. New sales attributable to acquisitions in 1999 were $2,137,000. Net of acquisitions, home/office sales increased 13% in 1999. The increase in internal growth in existing market areas is a result of strong market growth for bottled water, in general, and greater brand awareness. Cost of goods sold for 1999 were $11,742,000 or 37% of sales, compared to $11,550,000, or 40% of sales, for 1998. The decrease in cost of goods sold as a percentage of sales compared to the prior year is partially attributable to lower bottling costs as a result of higher production volumes and more efficient production, and an increase in home and office distribution, which has better margins. The Company's mix of sales continued to skew more toward product for home and office delivery- to 49% in 1999 from 40% in 1998, in large part the result of acquisitions. The home and office category is characterized by lower bottling costs because of larger sizes and re-fillable bottles. As a result, the gross profit was higher in 1999, $19,654,000 or 63% of sales, than in 1998 when it was $17,619,000, or 60% of sales. Total operating expenses increased to $17,019,000 in 1999 from $15,555,000 in 1998, an increase of $1,464,000, or 9%. Of these amounts, selling, general and administrative expenses were $13,149,000 and $10,235,000 for 1999 and 1998, respectively, an increase of $2,914,000, or 28%. The increase in selling, general and administrative expenses was due to increased personnel, rent and lease expenses needed to grow the business as well as expenses associated with the businesses acquired in 1999. Advertising expenses decreased to $3,258,000 in 1999 from $4,702,000 in 1998, a decrease of $1,444,000, or 31%. The decrease is related primarily to the Company's use of different distribution channels that require less promotional support. However, given the competitive nature of the industry, the Company anticipates that it is likely to continue to spend significant amounts in the future for advertising and promotion as it continues to develop brand recognition and increase market penetration but can give no assurances that increases in spending will result in higher sales. Amortization expense decreased slightly to $612,000 in 1999 from $617,000 in 1998, a decrease of $5,000. Profit from operations in 1999 was $2,635,000 compared to $2,065,000 for 1998, an increase of $570,000. Net interest expense increased to $1,030,000 in 1999 from $755,000 in 1998, an increase of $275,000. The increase was a result of greater amounts borrowed during the period primarily related to acquisitions. The improvement in profit before income taxes to $1,605,000 in 1999 from $1,412,000 in 1998 was the result of increased sales and decreased manufacturing and operating costs, on a per unit basis. Net income of $3,399,000 in 1999 compared to $2,859,000 in 1998, an improvement of $540,000. The Company recorded a tax benefit of $1,793,000 in 1999 compared to $1,447,000 in 1998. This benefit reflects a partial recognition of the Company's total available deferred tax assets of approximately $4.6 million at October 30, 1999, based on an evaluation of likely utilization. If the Company continues to be profitable, the remaining $832,000 of unrecorded deferred tax benefits will be available for recognition in future years. No assurance can be given that the Company will be profitable in the future and that these tax benefits will actually be used. Based on the weighted number of shares of common stock outstanding of 10,279,377 during 1999 and 10,248,389 during 1998, the basic net income per share was $.33 and $.28 per share, respectively. Based on the weighted number of shares of diluted common stock outstanding of 10,790,722 and 10,927,025 for the same respective periods, the diluted net income per share was $.31 per share in 1999 and $.26 per share in 1998. YEAR ENDED OCTOBER 31, 1998 COMPARED TO YEAR ENDED OCTOBER 25, 1997 Sales for 1998 were $29,169,000 compared to $17,685,000 for 1997, an increase of $11,484,000 or 65%. 1998 sales attributable to acquisitions made during the year were $5,305,000, which represented 30 percentage points of the overall 65 point increase. Excluding revenues attributable to acquisitions, sales for 1998 net of acquisitions were $23,864,000. Average selling price per case was unchanged. The Company's 35 percentage point (1998 over 1997) increase in sales, net of acquisitions, was accounted for by increases in the following distribution channels: 17 percentage points for retail size Vermont Pure, 4 points for Hidden Spring, 4 points for Private Label, 8 points for home/office and 2 points from other sources. In addition, the Company operates on a "52-53 week" reporting year. Sales and other financial results were favorably affected by the 1998 fiscal year having 53 weeks compared to 52 weeks for 1997 and 1996. Sales of the Company's retail-size products were $17,455,000 in 1998, an increase of 41% over 1997, when sales of these products were $12,375,000. The Vermont Pure brand continued to grow in its core markets, particularly the metropolitan New York City area. Total sales for this brand increased 33% over 1997. Sales for the Hidden Spring brand, up 53% for the year, continued to grow through market expansion in secondary distribution channels. The Company increased the number of private label customers that it packs for, resulting in a 79% increase in sales for these products. Sales for the home and office delivery category of the business more than doubled in 1998 to $11,714,000 from $5,310,000 in 1997. The Company continued to expand its home and office distribution through acquisitions. New sales attributable to acquisitions in 1998 were $4,950,000. Net of acquisitions, home/office sales increased 27% in 1998, more than double the 12% rate of internal growth in 1997. The increase in internal growth in existing market areas is a result of strong market growth for bottled water, in general, and greater brand awareness. Cost of goods sold for 1998 were $11,550,000 or 40% of sales, compared to $7,644,000, or 43% of sales, for 1997. The decrease in cost of goods sold as a percentage of sales compared to the prior year is due to lower bottling costs as a result of higher production volumes and more efficient production, and an increase in home and office distribution. In addition, new production equipment was installed to improve the capacity and efficiency of the bottling line. As a result of acquisitions, the Company's mix of sales skewed more toward product for home and office delivery- to 40% in 1998 from 30% in 1997. The home and office category is characterized by lower bottling costs because of larger sizes and re-fillable bottles. Consequently, the gross profit was higher in 1998, $17,619,000 or 60% of sales, than in 1997 when it was $10,042,000, or 57% of sales. Total operating expenses increased to $15,555,000 in 1998 from $9,204,000 in 1997, an increase of $6,351,000, or 69%. Of these amounts, selling, general and administrative expenses were $10,235,000 and $5,898,000 for 1998 and 1997, respectively, an increase of $4,337,000, or 74%. The increase in selling, general and administrative expenses is correlated to the resources needed to grow and administratively service the business. Advertising expenses increased to $4,702,000 in 1998 from $3,077,000 in 1997, an increase of $1,625,000, or 53%. This increase reflects amounts spent on product promotion, primarily for retail-size product, to stay competitive in the marketplace and continue the Company's sales growth trend. The Company anticipates that it will have to continue to make significant promotional expenditures and/or reduce selling prices in order to stay competitive in an increasingly competitive market. Amortization expense increased to $617,000 from $229,000 in 1998 and 1997, respectively, an increase of $388,000, as a result of the 1998 acquisitions. Profit from operations in 1998 was $2,065,000 compared to $838,000 for 1997, an increase of $1,227,000. Net interest expense increased to $755,000 in 1998 from $368,000 in 1997, an increase of $387,000. The increase was a result of greater amounts borrowed during the period primarily related to the acquisitions.The improvement in profit before income taxes to $1,412,000 in 1998 from $523,000 in 1997 was the result of increased sales and decreased manufacturing and operating costs, on a per unit basis. Net income of $2,859,000 in 1998 compared to $1,067,000 in 1997, an improvement of $1,792,000. The Company recorded a tax benefit of $1,447,000 in 1998 compared to $544,000 in 1997. This benefit reflects a partial recognition of the Company's total available deferred tax assets of approximately $5.2 million at October 31, 1998, based on an evaluation of likely utilization. If the Company continues to be profitable, the remaining $3.2 million of unrecorded deferred tax benefits will be available for recognition in future years. No assurance can be given that the Company will be profitable in the future and that these tax benefits will actually be used. Based on the weighted number of shares of common stock outstanding of 10,248,389 during 1998 and 9,771,347 during 1997, the basic net income per share was $.28 and $.11 per share, respectively. Based on the weighted number of shares of diluted common stock outstanding of 10,927,025 and 9,805,500 for the same respective periods, the diluted net income per share was $.26 per share in 1998 and $.11 per share in 1997. LIQUIDITY AND CAPITAL RESOURCES At October 30, 1999, the Company had working capital of $3,028,000. This represents an increase of $2,293,000 from the $735,000 of working capital on October 31, 1998. The increase in working capital primarily reflects a PET inventory buildup to accommodate summer demand as well as the prepayment of the new home and office computer system and a building expansion in Randolph, Vermont. When these two projects are finished they will be capitalized. In April, 1998 the Company entered into a five (5) year revolving credit line with CoreStates Bank, N.A. (now First Union National Bank) in order to borrow up to $15 million under certain terms and conditions. The purpose of this loan is for permitted (under the agreement) acquisitions and capital expenditures, working capital and consolidation of debt. Under the agreement and supplemental instruments the Company is required to pay interest monthly at a rate of LIBOR plus 2.5%, currently approximately 8.4%. The line of credit is contingent upon the Company continuing to meet certain loan covenants that are customary for credit facilities of this type. On October 30, 1999 the Company was entitled to borrow up to $3 million for operating working capital and the balance for acquisitions under the agreement. At October 30, 1999 the Company had borrowed $2.0 million on the operating portion and $9.7 million on the acquisition portion of the line. The Company has signed a letter of intent with First Union National Bank to increase the line of credit to $25 million. Of the $25 million, $4.3 million will be allocated to a letter of credit to underwrite a new bond issue for the Randolph, Vermont building expansion as well as new production equipment purchases. The Company believes that its working capital and access to available credit are adequate to fund its current day to day operations and that revenues will continue to cover operating and capital expenses and debt repayment in the 2000 fiscal year. However, there can be no assurance that this will be the case. Cash flow from operations was $876,000 for the fiscal year ended October 30, 1999 as compared to $2,806,000 in the fiscal year ended October 31, 1998, a decrease of $1,930,000. Operating cash usage was up due primarily to a planned inventory build up. Cash flows from investing activities had a net outflow of approximately $4,746,000, with $2,024,000 expended for acquisitions and $2,775,000 expended for property, plant and equipment being the primary uses. Financing activities provided a net cash inflow of $4,076,000, Proceeds from debt, proceeds from line of credit and the exercise of stock options were $3,743,000 and 1,025,000 and $88,000 respectively. These borrowings were slightly offset by principal payment of debt of $780,000. At October 30, 1999, the Company has recorded a deferred tax asset of $3,793,000. Based on current levels of profitability, the realization of such deferred tax asset would take approximately four more years. In addition to the bank debt associated with its recent acquisitions, the Company financed certain of these transactions with notes to the sellers. As of October 30, 1999, these notes had an unpaid balance of $1,335,000. The notes are at interest rates ranging from 8% to 10% and are being repaid through August 2004. The Company anticipates that it will spend approximately $6.3 million for capital items in fiscal 2000 to maintain and continue to grow its business. The Company believes that it will have adequate resources available from internal cashflow and existing debt instruments to fund its capital plan. The Company has begun the expansion of its facility in Randolph, Vermont. The cost of this expansion, including a new high speed bottling line, is approximately $4.3 million. The expansion is being funded through a combination of debt and working capital. The remaining $2 million consists of fixed assets, which include water coolers, coffee machines and 5 gallon water bottles for the Home/Office segment of the business. The Company is pursuing an active program of evaluating acquisition opportunities. To complete any acquisitions, the Company anticipates using its capital resources and obtaining financing from outside sources. Except for the current loan facilities discussed above, the Company has no other current arrangements with respect to, or sources of, additional financing for its business or future plans. Although the Company believes it will be able to obtain any required financing, there can be no assurance given that financing will be available to the Company on acceptable terms or at all. Inflation has not had a material impact on the Company's operations to date. YEAR 2000 READINESS DISCLOSURE Computers, software and other equipment utilizing microprocessors that use only two digits to identify a year in a date field may be unable to accurately process certain date-based information at or after the January 1, 2000. This is commonly referred to as the "Year 2000" or "Y2K" problem. The Company has experienced no problems or issues relating to the Y2K problem as of the date of this report. We will gain more confidence that this issue will not impede our business once we have gone through a transaction cycle with every customer and vendor. We anticipate that this cycle should be complete, for the most part, by the end of our first fiscal quarter in the year 2000. We will maintain our contingency plans until we are satisfied that the business will not be impacted by the possibility of a Y2K problem. The foregoing Year 2000 capital disclosure constitutes a "Year 2000 readiness disclosure" under the Year 2000 Information and Readiness Disclosure Act. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risks relating to the Company's operations result primarily from changes in interest rates and commodity prices (the resin prices for PET bottles). INTEREST RATE RISKS At October 30, 1999 the Company had $11,689,792 of long term debt subject to variable interest rates. Under the revolving line of credit agreement with First Union National Bank the Company currently pays interest at a rate of LIBOR plus 2.5%. A hypothetical 100 basis increase in the LIBOR rate would result in an additional $116,898 of interest expense on an annualized basis. COMMODITY PRICE RISKS Although the Company has yearly contracts with its vendors that sets the purchase price of its PET bottles, the vendors are entitled to pass on to the Company any resin price increases. These prices are related to supply and demand market factors for PET and, to a lesser extent the price of petroleum, from where PET is derived. A hypothetical resin price increase of $.05 per pound would result in an approximate price increase per bottle of $.005. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Since inception, the Company has not changed accountants and has had no disagreement on any matter of accounting principles or practices or financial statement disclosure. ITEM 9. FINANCIAL STATEMENTS AND OTHER SUPPLEMENTARY DATA Financials statements and their footnotes are set forth on pages F-1 through F-18 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning each director and executive officer of the Company: NAME AGE POSITION Timothy G. Fallon 45 Chief Executive Officer, President and Chairman of the Board Phillip Davidowitz 67 Director Robert C. Getchell 51 Director Frank G. McDougall 49 Director David R. Preston 59 Director Norman E. Rickard 63 Director Beat Schlagenhauf 48 Director Richard Worth 50 Director Bruce S. MacDonald 41 Chief Financial Officer and Secretary The business experience during at least the last five years of each of the directors and the executive officers of the Company is as follows: TIMOTHY G. FALLON has been the Chief Executive Officer and President and a director of the Company since November 1994. In April 1998, he was appointed Chairman of the Board of Directors. From January 1992 to November 1994, Mr. Fallon was the Senior Vice President, Sales and Marketing for Cadbury Beverages, Inc. From October 1989 to December 1991, Mr. Fallon was Vice President of Sales for Canada Dry USA, a division of Cadbury Beverages, Inc. From July 1984 to September 1989, Mr. Fallon served as Vice President - Sales and Marketing for Pepsi Cola Bottling Company New York City, Inc. PHILLIP DAVIDOWITZ has been a Director of the Company since June 1998. Mr. Davidowitz has been President of TSE Clearing Services, Inc. since 1980 and a member of The New York Stock Exchange and Vice Chairman of Transatlantic Securities Co. since 1988. ROBERT C. GETCHELL has been a director of the Company since December 1994. Mr. Getchell has been a principal of Getchell Professional Association, a firm of certified public accountants in Quechee, Vermont, for more than the past five years. In July 1992, Mr. Getchell was appointed to the Vermont Economic Development Authority and served as its chairman from 1996 through 1998. FRANK G. MCDOUGALL, JR. has been a director since June 1994 and was chairman of the board from November 1994 through March 1998. From January 1995 to December 1997, Mr. McDougall was a part-time employee of the Company. From December 1993 until January 1995 and since January 1998, Mr. McDougall has acted as a consultant to the Company in the areas of management and government relations and regulation through Frank McDougall & Associates, a company he founded in October 1993. Since March 1996, Mr. McDougall has been the Director of Corporate and Government Relations for the Dartmouth Hitchcock Medical Center and the Hitchcock Clinic. From July 1990 to October 1993, Mr. McDougall was the Secretary of the Agency of Development and Community Affairs of the State of Vermont. In March 1997, Mr. McDougall was appointed to the Vermont Board of Education. DAVID R. PRESTON has been a director of the Company since October 1995. Mr. Preston has been a consultant and adjunct professor of Suffolk University in Boston, Massachusetts since September 1995. From 1990 to July 1995, Mr. Preston was a division president at Kayser-Roth Corporation, a sock and hosiery manufacturer, located in Greensboro, North Carolina. Since September 1996, he has been a Senior Associate with Renaissance Management Group LLC, a management consulting firm. Mr. Preston is a retired division president and corporate officer of the Gillette Company. NORMAN E. RICKARD has been a director of the Company since May 1995. Mr. Rickard, who is retired, was the President of Xerox Document Services Group of Xerox Corporation and a Corporate Senior Vice President. Mr. Rickard was employed by Xerox Corporation from 1967 in various capacities, including President of Xerox Business Services, Director of Business Effectiveness, Director of the Worldwide Strategic Manufacturing Project, Director of Staff Operations and Vice President of Quality. He is also currently a director of National Alliance of Business, Optical Dynamic Corporation and Health Now. BEAT SCHLAGENHAUF has been a director of the Company since July 1993. Mr. Schlagenhauf has been a principal of Schlagenhauf & Partners, a portfolio management company in Zurich, Switzerland, for more than the past thirteen years. RICHARD WORTH has been a director of the Company since June 1994. Since 1997, Mr. Worth has been the Chairman and Chief Executive Officer of Cool Fruits, Inc. From 1994 to 1997, Mr. Worth was the Chairman and Chief Executive Officer of The Delicious/Frookie Co., a manufacturer and marketer of cookies and snack products. From 1986 to 1994, Mr. Worth was the Chairman and Chief Executive Officer of R.W. Frookies, Inc., a manufacturer and marketer of cookies and snack products. From 1978 to 1985, Mr. Worth owned and operated Sorrell Ridge, Inc., a manufacturer and marketer of jams. BRUCE S. MACDONALD has been Chief Financial Officer and Treasurer of the Company since May 1993, during 1999 he was assigned the additional responsibility of Chief Operating Officer. From 1987 to May 1993, Mr. MacDonald was Controller of Cabot Cooperative Creamery Incorporated. SECTION 16(a) COMPLIANCE Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires the Company's officers, directors and persons who beneficially own more than ten percent of a registered class of the Company's equity securities ("ten percent stockholders") to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Officers, directors and ten percent stockholders are charged by the SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based Solely on its review of the copies of such forms received by it the Company believes that with respect to the Company's fiscal year ended October 30, 1999, all filings and reports were made on time and no such event went unreported. ITEM 11. EXECUTIVE COMPENSATION. The following tables show (1) the cash compensation paid by the Company, as well as certain other compensation paid or accrued, to the Chief Executive Officer and Chief Financial Officer of the Company for the fiscal years ended October 25, 1997, October 31, 1998,and October 30, 1999 (2) information reporting options granted to the Chief Executive Officer and the Chief Financial Officer during the fiscal year ended October 30,1999, and (3) information regarding the value of all options granted to the Chief Executive Officer and Chief Financial Officer at the end of the fiscal year ended October 30, 1999. The Company has no other executive officers.
SUMMARY COMPENSATION TABLE FISCAL ANNUAL COMPENSATION LONG TERM COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/ ALL OTHER ($) ($) (# SHARES) COMPENSATION ($) Timothy G. Fallon ................... 1999 $186,400 $195,000 -0- $ 14,740 Chief Executive Officer and President 1998 $186,400 $202,500 -0- $ 4,240 1997 $184,000 $150,000 690,000(1) $ 5,278 Bruce S. MacDonald .................. 1999 $ 85,000 $ 75,000 -0- $ 8,612 Chief Financial Officer and Treasurer 1998 $ 85,000 $ 55,000 30,000 $ 3,937 1997 $ 75,000 $ 30,000 101,000(2) $ 4,204
(1) This amount under "Options" includes 440,000 options with an exercise price per share of $2.50 issued in replacement for 400,000 options with an exercise price of $2.25 per share, a net increase of 40,000 options, and 250,000 options granted with an exercise price per share of $2.50. The amount under "All Other Compensation" represents a car allowance and life and disability insurance expenses. (2) This amount under "Options" includes 51,000 options with an exercise price per share issued of $2.50 issued in replacement for 45,000 options with a weighted average exercise price of $2.58 per share, a net increase of 6,000 options, and 50,000 options granted with an exercise price per share of $2.50. The amount under "All Other Compensation" represents car and disability insurance allowances. The Company cannot determine, without unreasonable effort or expense, the specific amount of certain personal benefits afforded to its employees, or the extent to which benefits are personal rather than business. The Company has concluded that the aggregate amounts of such personal benefits which cannot be specifically or precisely ascertained do not in any event exceed, as to the individuals named in the preceding table, the lesser of $50,000 or 10% of the compensation reported in the preceding table for such individuals, and that such information set forth in the preceding table is not rendered materially misleading by virtue of the omission of the value of such personal benefits. The executive officers named in the preceding summary compensation table were not granted options or shares during the fiscal year ended October 30, 1999.
AGGREGATE YEAR-END OPTION VALUES NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY AT FISCAL YEAR-END (#) OPTIONS AT FISCAL YEAR-END ($)(1) NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Timothy G. Fallon 570,000 150,000 $178,410 $46,950 Chief Executive Officer and President Bruce S. MacDonald, Chief 91,000 50,000 $29,153 $9,390 Financial Officer and Treasurer - ----------------------------------------------------------------------------------------------------------------
(1) As of October 30, 1999, the closing price per share of Common Stock was $2.813 on the American Stock Exchange. EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS In October 1997, the Company executed an employment agreement with Timothy G. Fallon which has an effective date of November 1, 1997 and expires November 1, 2001. This agreement was amended during October 1999 but still expires on November 1, 2001. Pursuant to the agreement, which replaced a prior agreement dated November 4, 1994, Mr. Fallon acts as the Chief Executive Officer and President of the Company. His annual base salary is $205,000, which is reviewed annually by the board. The Company provides Mr. Fallon with an automobile and disability insurance allowance. If his employment is terminated without cause (including a deemed termination by reason of a "Change of Control", as defined), Mr. Fallon is entitled to receive life and health insurance benefits together with severance payments equal to 1.0 times his annual base salary plus $150,000 payable over 12 months if such termination occurs in fiscal years 2000 through 2001. In each case, Mr. Fallon will be subject to a period of non-competition equal to the greater of 12 months or the period during which severance is paid. No benefits are due if Mr. Fallon's employment is terminated for "cause", as defined. In addition to bonus payments disclosed above that were paid to him with respect to fiscal 1999, Mr. Fallon is entitled to incentive bonuses based upon the achievement of certain performance goals of the Company for fiscal years 2000 and 2001. For fiscal years 2000 and 2001, his incentive compensation will include payments of $75,000 for meeting Board approved target sales and $75,000 for meeting Board approved target EBITDA, again with greater or lesser payments (non-cumulative) for achieving targets within specified ranges above or below budget. Mr. Fallon is also entitled to receive special bonuses if the Company achieves sales of $40,000,000 or $50,000,000 during fiscal year October 2000 or October 2001. These bonuses are, respectively, $25,000 and $50,000. These bonuses are cumulative and may be earned in the same fiscal year. If the Company can maintain or exceed a $5.00 per share stock price for 54 out of 60 consecutive trading days during the period November 1, 1999 through October 31, 2001 Mr. Fallon will receive a special bonus of $50,000. On and as of November 1, 1997, the Company entered into an employment agreement with Bruce S. MacDonald which expires November 1, 2001. Pursuant to the agreement, Mr. MacDonald acts as the Chief Financial Officer and Treasurer of the Company. His annual base salary is $100,000, to be reviewed annually by the board. The Company provides Mr. MacDonald with automobile and disability insurance allowances. If his employment is terminated without cause (including a deemed termination by reason of a "Change of Control", as defined), Mr. MacDonald is entitled to receive life and health insurance benefits together with severance payments equal to 1.0 times his annual base salary plus $50,000 payable over 12 months if such termination occurs in fiscal years 2000 through 2001. In each case, Mr. MacDonald will be subject to a period of non-competition equal to the greater of 12 months or the period during which severance is paid. No benefits are due if Mr. MacDonald's employment is terminated for "Cause", as defined. In addition to the bonus payments disclosed above that were paid to him with respect to fiscal 1999, Mr. MacDonald is entitled to incentive bonuses based upon the achievement of certain performance goals of the Company for fiscal years 2000 to 2001. Mr. MacDonald's incentive compensation for each of these years is $50,000 for meeting Board approved target EBITDA, with greater or lesser payments (non-cumulative) for meeting EBITDA targets within specified ranges. Effective November 1, 1999, the Company entered into a consulting agreement with Frank G. McDougall, Jr., a director of the Company, through Frank McDougall & Associates for a term of one year. Pursuant to that agreement, Mr. McDougall provides consulting services to the Company in the area of government relations and regulations. Mr. McDougall was paid an initial fee of $10,000 on November 1, 1999 and receives $1,000 per month from the Company in exchange for providing consulting services. As part of this agreement, Mr. McDougall has waived all compensation as a director. COMPENSATION OF DIRECTORS Directors who are employees of the Company do not receive any fees for attending Board meetings. Directors who are not employees of the Company receive $7,500 each year, $3,750 payable on July 1 and $3,750 payable on January 1, provided the directors participate in 80% or more of the meetings of the Board for the six months prior to the July 1 and January 1 payment dates, and $750 for each meeting of the Board attended. In addition, the Board voted in September 1998 to automatically issue 5,000 common stock options to each outside director at the beginning of each fiscal year. Such stock option issuance to directors are limited to 105,000 options in total. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The table and accompanying footnotes on the following pages set forth certain information as of January 19, 2000 with respect to the stock ownership of (i) those persons or groups who beneficially own more than 5% of the Company's Common Stock, (ii) each director of the Company (iii) the Company's Chief Executive Officer and Chief Financial Officer, and (iv) all directors and executive officers of the Company as a group (based upon information furnished by such persons). The Company has no other executive officers. Shares of Common Stock issuable upon exercise of options and warrants which are currently exercisable or exercisable within 60 days of the date of this table have been included in the following table. AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE OF OWNERSHIP OUTSTANDING SHARES OWNED OWNER'S NAME AND ADDRESS TIMOTHY G. FALLON ................. 570,000(2) 5.3% Route 66, Catamount Industrial Park Randolph, VT 05060 Robert C. Getchell ................ 67,000(3) .6% Frank G. McDougall, Jr ............ 82,000(1) .8% David R. Preston .................. 71,000(4) .7% Norman E. Rickard ................. 67,000(5) .6% Beat Schlagenhauf ................. 67,000(1) .6% Richard Worth ..................... 67,000(6) .6% M. Dolores Paoli .................. 947,600(7) 8.8% 41 BERMUDA ROAD Westport, CT 06880 BRUCE S. MACDONALD ................ 91,000(1) .8% Phillip Davidowitz ................ 15,000(1) .1% All Officers and Directors AS A GROUP (9 INDIVIDUALS) ........ 1,097,000(8) 10.2% - ----------------------------------------------------- --------------------------
(1) Represents shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of this table. (2) Includes 568,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of this table. (3) Includes 62,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of this table. (4) Includes 69,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of this table. (5) Includes 65,000 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of this table. (6) Includes 59,500 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of this table. (7) Includes 687,000 shares own by Ms. Paoli directly, 135,100 shares owned by Condor Ventures, Inc., a business of which Ms. Paoli's husband is President, and 125,000 shares issuable pursuant to an outstanding stock option held by Condor Ventures. (8) Includes 1,078,500 shares of Common Stock issuable pursuant to outstanding stock options exercisable within 60 days of the date of this table.
EMPLOYEE STOCK PURCHASE PLAN The Company has an employee stock purchase plan under section 423 of the Internal Revenue Service code in which participating employees may utilize payroll deductions to purchase chares of the Company's common stock at a discount from fair market value. The plan is expected to commence April, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. The following documents are filed as part of this report: Financial Statements and Financial Statement Schedules. Reference is made to the Index to Financial Statements included in Item 7 of Part II hereof, where such documents are listed. EXHIBITS AS REQUIRED BY ITEM 601 OF REGULATION S-K: EXHIBIT DESCRIPTION NUMBER 3.1 Amended and Restated Certificate of Incorporation of Registrant dated January 12, 1994. (Incorporated by reference from Exhibit 3.3 of Form 10-KSB for fiscal year ended October 30, 1993 - File No. 1-11254.) 3.2 Amendment of Certificate of Incorporation of Registrant dated June 15, 1999. 3.3 By-Laws of Registrant. (Incorporated by reference from Exhibit 3.4 of Registration Statement 33-46382.) 3.4 Amendment to By-Laws of Registrant Adopted March 26, 1997. (Incorporated by reference from Exhibit 3.3 of Form 10-KSB for fiscal year ended October 25, 1997 - File No. 1-11254.) 10.1* Employment Agreement between the Registrant and Timothy G. Fallon dated as of November 1, 1996. (Incorporated by reference from Exhibit 10.1 of Form 10-KSB for fiscal year ended October 25, 1997 - File No. 1-11254.) 10.2* Amendment to the November 1, 1996 Employment Agreement between the Registrant and Timothy G. Fallon. Dated November 1, 1999. 10.3* Employment Agreement between the Registrant and Bruce S. MacDonald dated as of November 1, 1997. (Incorporated by reference from Exhibit 10.2 of Form 10-KSB for fiscal year ended October 25, 1999 - File No. 1-11254.) 10.4* Stock Option Agreement between Registrant and Mr. Fallon. (Incorporated by reference from Exhibit 10.7 of Form 10-K for fiscal year ended October 28, 1994, File No. 1-11254.) 10.5 1993 Performance Equity Plan. (Incorporated by reference from Exhibit 10.9 of Registration Statement 33-72940.) 10.6 Stock Purchase Agreement between Springs and Carolyn Howard relating to the acquisition of A.M. Fridays, Inc. dated July 16, 1997. (Incorporated by reference from Exhibit 10.1 of the Report on Form 10-QSB for the Quarter Ended July 26, 1997.) 10.7 Stock Purchase Agreement between the Registrant and David Eger dated August 27, 1997 relating to Excelsior Spring Water Co. ("Excelsior"). (Incorporated by reference from Exhibit 10.1 of the Report on Form 8-K dated September 11, 1997.) 10.8 Promissory Note from the Registrant to Mr. Eger in the principal amount of $503,000. (Incorporated by reference from Exhibit 10.2 of the Report on Form 8-K dated September 11, 1997.) 10.9 Form of Note Purchase Agreement between the Registrant and certain note holders of Excelsior dated August 27, 1997. (Incorporated by reference from Exhibit 10.3 of the Report on Form 8-K dated September 11, 1997.) 10.10 Form of Stock Purchase Agreement between the Registrant and certain stockholders of Excelsior dated August 27, 1997. (Incorporated by reference from Exhibit 10.4 of the Report on Form 8-K dated September 11, 1997.) 10.11 Schedule of Stock and Note Purchase Agreement information dated August 27, 1997 regarding the Excelsior purchase. (Incorporated by reference from Exhibit 10.7 of the Report on Form 8-K dated September 11, 1997.) 10.12 Consulting Agreement between the Registrant and Corporate Investors Network, Inc. dated December 1, 1996. (Incorporated by reference from Exhibit 10.1 of the Report on Form 10-QSB for the Quarter Ended January 25, 1997.) 10.13 Warrant Agreement between the Registrant and Eugene F. Malone dated December 1, 1996. (Incorporated by reference from Exhibit 10.2 of the Report on Form 10-QSB for the Quarter Ended January 25, 1997.) 10.14 1998 Incentive and Non-Statutory Stock Option Plan (Incorporated by reference to Appendix A of the Registrant 1998 Proxy Statement.) 10.15 Asset Purchase Agreement between Vermont Pure Holding, Ltd. and Vermont Coffee Time, Inc. relating to the purchase certain assets and liabilities dated December 19, 1997. (Incorporated by reference from Exhibit 10.1 of the report on Form 10-QSB for the Quarter ended January 24, 1998). 10.16 Promissory Note Between Vermont Pure Springs, Inc. and Vermont Pure Holdings and Coffee Time, Inc. dated January 5, 1998. (Incorporated by reference from Exhibit 10.2 of the report on Form 10-QSB for the Quarter ended January 24, 1998). 10.17 Security Agreement between Vermont Pure Springs, Inc. and Vermont Pure Holdings and Coffee Time, Inc. dated January 5, 1998. (Incorporated by reference from Exhibit 10.3 of the report on Form 10-QSB for the Quarter ended January 24, 1998). 10.18 Consulting Agreement between Amy Berger and Vermont Pure Holdings, Ltd. dated January 5, 1998. (Incorporated by reference from Exhibit 10.4 of the report on Form 10-QSB for the Quarter ended January 24, 1998). 10.19 Non Compete Agreement of Fred Beauchamp and Jim Creed between Vermont Pure Holdings, Ltd. and Sagamon Springs, Inc. dated January 6, 1998. (Incorporated by reference from Exhibit 10.5 of the report on Form 10-QSB for the Quarter ended April 25, 1998). 10.20 Loan and Security Agreement Between Vermont Pure Springs, Inc. and CoreStates Bank, N.A. dated April 8, 1998. (Incorporated by reference from Exhibit 10.6 of the report on Form 10-QSB for the Quarter ended April 25, 1998). 10.21 Amended Loan and Security Agreement between Vermont Pure Springs, Inc and First Union National Bank (formerly CoreStates Bank, N.A.) dated January 20, 1999. 1999 Employee Stock Purchase Plan (Incorporated by reference to Exhibit A of the Registrant 1999 Proxy Statement.) 10.22 Stock Purchase Agreement between the Registrant, Paul Hayes and Michael Hayes dated July 27, 1999 relating to Adirondack Coffee Services, Inc. 10.23 Promissory Note dated July 27, 1999 from the Registrant to Mr. Hayes in the Principal 10.24 amount of $303,734.00 10.25 Amended and Restated Spring Water Licenses and Supply Agreement between Registrant and Pristine Mountain Springs of Vermont, Inc and Amsource, LLC dated April 13, 1999. 10.24 Promissory Note dated July 27, 1999 from the Registrant to Mr. Hayes in the Principal amount of $303,734.00. 10.25 Amended and Restated Wpring Water Licenses and Supply Agreement between Registrant and Pristine Mountian Springs of Vermont, Inc and Amsource, LLC dated April 13,1999 10.26 Loan Purchase Agreement to spring source dated September 30, 1999 between the Registrant and Marcon Capital Corporation. 10.27 Convertible Debenture Agreement dated September 30, 1999 between the Registrant and Marcon Capital Corporation in the amount of $975,000. 22 Subsidiaries are incorporated by reference from Exhibit 22 of Form 10KSB for fiscal year ended October 31, 1998, File No. 1-11254. 23.1 Consent of Independent Auditors 27 Financial Data Schedule * Relates to compensation Reports on Form 8-K The Registrant filed a Report on Form 8-K dated October 7, 1998 with respect to its distribution arrangement with Coca Cola Enterprises, Inc. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Vermont Pure Holdings, Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VERMONT PURE HOLDINGS, LTD. BY:/S/ TIMOTHY G. FALLON Dated: January 28, 2000 Timothy G. Fallon, Chief Executive Officer, President, and Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. NAME TITLE DATE /S/ TIMOTHY G. FALLON Chief Executive Officer, January 28, 2000 Timothy G. Fallon President, and Chairman of the Board of Directors /S/ PHILLIP DAVIDOWITZ Director January 28, 2000 Phillip Davidowitz /S/ ROBERT C. GETCHELL Director January 28, 2000 Robert C. Getchell /S/ FRANK G. MCDOUGALL, JR. Director January 28, 2000 Frank G. McDougall, Jr. /S/ DAVID R. PRESTON Director January 28, 2000 David R. Preston /S/ NORMAN E. RICKARD Director January 28, 2000 Norman E. Rickard /S/ BEAT SCHLAGENHAUF Director January 28, 2000 Beat Schlagenhauf /S/ RICHARD WORTH Director January 28, 2000 Richard Worth /S/ BRUCE S. MACDONALD Chief Financial Officer January 28, 2000 Bruce S. MacDonald and Secretary EXHIBITS TO VERMONT PURE HOLDINGS, LTD. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 30, 1999 Exhibit NUMBER DESCRIPTION 3.2 Amendment of Certificate of Incorporation of Registrant dated June 15, 1999. 10.2 Amendment to the November 1, 1996 Employment Agreement between the Registrant and Timothy G. Fallon. Dated November 1, 1999. 10.21 Amended Loan and Security Agreement between Vermont Pure Springs, Inc. and First Union National Bank dated January 20, 1999. 10.23 Stock Purchase Agreement between the Registrant, Paul Hayes and Michael Hayes dated July 27, 1999 relating to Adirondack Coffee Services, Inc. 10.24 Promissory Note dated July 27, 1999 from the Registrant to Mr. Hayes in the Principal amount of $303,734.00 10.25 Amended and Restated Spring Water Licenses and Supply Agreement between Registrant and Pristine Mountain Springs of Vermont, Inc and Amsource, LLC dated April 13, 1999. 10.26 Loan Purchase Agreement to spring source dated September 30, 1999 between the Registrant and Marcon Capital Corporation. 10.27 Convertible Debenture Agreement dated September 30, 1999 between the Registrant and Marcon Capital Corporation in the amount of $975,000. 23.1 Consent of Independent Auditors 27 Financial Data Schedule EX-3.(II) 2 3.2 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF VERMONT PURE HOLDINGS, LTD. Vermont Pure Holdings, Ltd., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation has adopted resolutions proposing and declaring advisable that the Restated Certificate of Incorporation of the Corporation be amended and that such amendment be submitted to the stockholders of the Corporation for their consideration, as follows: That the Company's Restated Certificate of Incorporation, as amended to date, be further amended by deleting in its entirety the first sentence of Article 4 thereof and replacing said first sentence with the following sentence: "The total number of shares of capital stock which the Corporation shall have authority to issue is Fifty Million Five Hundred Thousand (50,500,000) shares, of which Fifty Million (50,000,000) shares will be Common Stock, par value $.001 per share, and Five Hundred Thousand (500,000) shares shall be Preferred Stock, par value $.001 per share", it being understood that the other provisions of said Article 4 shall be and remain unchanged. SECOND: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by Timothy Fallon, its PRESIDENT, THIS 15TH day of June, 1999. /s/ Timothy Fallon Timothy Fallon, President EX-10.2 3 10.2 EXECUTION COPY AMENDMENT TO EMPLOYMENT AGREEMENT Reference is made to the Employment Agreement made as of November 1, 1996 (the "Employment Agreement"), by and between VERMONT PURE HOLDINGS, LTD., a Delaware corporation (the "Company"), VERMONT PURE SPRINGS, INC., a Delaware corporation that is a wholly owned subsidiary of the Company ("Springs"), and TIMOTHY FALLON (the "Executive"). The Employment Agreement is hereby amended as set forth herein. The effective date of these amendments is November 1, 1999. 1. SECTION 3.1 of the Employment Agreement is amended by changing the annual base salary from $186,400 to $205,000. 2. SECTION 3.2 of the Employment Agreement is amended by inserting the following new Sections 3.2.5, 3.2.6 and 3.2.7: SECTION 3.2.5 BONUS FOR ACHIEVING SALES OF $40,000,000. With respect to the Company's fiscal years ending October 2000 and October 2001: if the Company has annual sales equal to or in excess of $40,000,000, then there shall be a bonus of $25,000. This bonus is payable only once. SECTION 3.2.6 BONUS FOR ACHIEVING SALES OF $50,000,000. With respect to the Company's fiscal years ending October 2000 and October 2001: if the Company has annual sales equal to or in excess of $50,000,000, then there shall be a bonus of $50,000. This bonus is payable only once. The bonuses set forth in Sections 3.2.5 and 3.2.6 are cumulative and may (but need not) be earned in the same fiscal year, but in each case are payable only once. SECTION 3.2.7. BONUS FOR ACHIEVING AND MAINTAINING $5.00 STOCK PRICE. With respect to the period from November 1, 1999 to October 31, 2001: if the closing price of the Company's Common Stock on its principal trading market (currently the American Stock Exchange) is equal to or in excess of $5.00 per share for 54 trading days in any period of 60 consecutive trading days, where a "trading day" is a business day on which the principal trading market for the Company's Common Stock is open for trading, then there shall be a bonus of $50,000. This bonus is payable only once. 3. SECTION 3.2 of the Employment Agreement is amended by renumbering the previously existing Section 3.2.5 as Section 3.2.8, which shall be amended to read in its entirety as follows: SECTION 3.2.8. TIME OF BONUS PAYMENTS. Each bonus required to be paid to the Executive under Section 3.2, except for the bonus set forth in Section 3.2.7, shall be paid as soon as practicable after the filing with the Securities and Exchange Commission of -1- the Company's Annual Report on Form 10-K or 10-KSB or successor form, as the case may be. The bonus set forth in Section 3.2.7 shall be paid as soon as practicable following the delivery to the Company's Chief Financial Officer of a certificate in writing, signed by the Chairman (or if there is no Chairman, any member) of the Compensation Committee of the Board of Directors, stating that the conditions in Section 3.2.7 have been satisfied. 4. In all other respects, the terms and provisions of the Employment Agreement are hereby confirmed by the parties hereto. IN WITNESS WHEREOF, the parties have executed this Amendment to Employment Agreement on October __, 1999. COMPANY: VERMONT PURE HOLDINGS, LTD. By:__/s/ David R. Preston_____________ Name: David R. Preston Title: Director SPRINGS: VERMONT PURE SPRINGS, INC. By:__/s/ Frank G. McDougall, Jr.________ Name: Frank G. McDougall, Jr. Title: Director EXECUTIVE: __/s/ Timothy Fallon___________________ TIMOTHY FALLON -2- EX-10.21 4 10.21 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT This AGREEMENT is made this 2nd day of January, 1999, by and between VERMONT PURE HOLDINGS, LTD., a Delaware business corporation with its chief executive offices at Route 66, Catamount Industrial Park. Randolph, VT 05060, VERMONT PURE SPRINGS, INC., a Delaware business corporation with its chief executive offices at Route 66, Catamount industrial Park, Randolph, VT 05060 jointly and severally, the "Borrowers", and FIRST UNION NATIONAL Bank successor by merger to CORESTATES Bank N.A., a national banking association with offices at 1339 Chestnut Street, Philadelphia, Pennsylvania 19101-7618 (The "Bank"), BACKGROUND A. The Bank and the Borrowers are parties to a Loan and Security Agreement dated April 8, 1998 (as the foregoing may be amended, modified supplemented or restated from time to time, the "Loan Agreement"), pursuant to Which the Bank has made available to the Borrowers credit facilities in the form of a Working capital line of credit, and loans to facilitate the acquisition of specified types of businesses and assets. Unless otherwise indicated, all capitalized terms used in this Agreement shall have the meaning given to them in the Loan Agreement. B. The Borrowers have requested that the Bank increase by One Million Dollars ($I,000,000) the maximum amount available under the Working Capital Line of Credit, which the Bank has agreed to do subject to, and in reliance upon, the terms, conditions, representations, warranties and other matters set for& below. AGGREEMENT In consideration of the foregoing, and the covenants set forth below, and intending to be legally bound, the Borrowers and Bank agree: 1. AMENDMENT TO LOAN AGREEMENT. Effective as of the date of this Agreement, Sections 2.01, 2.02 and 2.05 are amended by deleting the number "'Two Million Dollars ($2,000,000) everywhere where number appears in those sections, and inserting in its place the number Three Million Dollars 2. Representations and warranties In order to induce the Bank to enter into this Agreement, the Borrowers represent and warrent to the Bank that: (a) The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other required action of the Borrowers and the Sureties, and does not and will not violate on of law, or any agreement, trust or other Indenture or instrument to which they are a by which their properties may be bound, or any order or decree affecting them or their properties, so that this Agreement will be a legal valid and binding obligation of the Borrowers Sureties, enforceable in accordance with their terms. (b) The financial state of the Borrowers prepared by management as of October 31, 1998, and previously filed to the Bank were prepared in accordance with GAAP, and present fairly the financial position of the Borrowers as of that date and the results of their operations for the period then ended. The Borrowers have no material or substantial contingent obligations or liabilities, for taxes or otherwise, not otherwise disclosed or reserved against in such financial statements. Since October 31, 1998, there bas been no material adverse of operations of the Borrowers or the Sureties from that set forth in such financial statements. (e) All representations and warranties made to the Bank in the Loan Agreement and the Loan Documents are true and correct, with the same effect as though 'Made on and as of the date of this Agreement, there has neither occurred, nor is there continuing, any event of Default or potential Death. (d) The Borrowers and the Sureties acknowledge and confirm that the loan Agreement and Loan Documents are valid and binding obligations, enforceable in accordance with the terms and conditions and that First Union National Bank is ihe successor by merger to Core States Bank N.A., and is entitled to all of the benefits and other rights set forth in the Loan Agreement and the Loan Documents. 3. Conditions Precedent. As conditions precedent to the matters ,contemplated by this Agreement (including the increased availability under the working capital Line of Credit), the Borrowers shall cause to be delivered to the Bank the following agreements, documents, instruments or other evidence, all in a form and content satisfactory to the Bank and its counsel: (a) This Agreement, duly executed (b) An Allonge to the working Capital, increasing the original principal amount of the Working Capital Note to $3,000,000 (c) Consent of the Securities to the matters contemplated by this Agreement, as evidenced by their signature of this Agreement in the place provided below. (d) Such additional agreements, documents, instruments or other matters as the Bank or its counsel may request or require under the terms of the Loan Agreement, or otherwise. 4. MISCELLANEOUS, (a) This Agreement shall be deemed a modification of the Loan Agreement and the Loan Documents, to the extent it is inconsistent with any of those agreements. (b) This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Borrowers and the Bank, aud shall be construed and enforced in accordance with the laws in effect in the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. VERMONT PURE HOLDINGS, LTD. By: Timothy Fallon President VERMONT PURE SPRINGS, INC. By: Timothy Fallon President VERMONT PURE SPRINGS, INC. FIRST UNION NATIONAL Bank successor by merger to CORESTATES Bank N.A. BY The undersigned, being identified in the above agreement as Sureties, do execute this Agreement in the place provided below for the purpose of evidencing their consent in the above transactions, and confirming as in full force and effect (without setoff, counterclaim, deduction or other claim of avoidance of my nature). their unlimited LIABILITY AS TO sureties for the Indebtedness, EXCELSIOR SPRINGS WATER COMPANY, INC. By: Timothy G. Fallon President A.M. FRIDAYS, INC. By Timothy G. Fallon, President LISA ANN LYONS NOTARY PUBLIC, STATE OF NEW YORK NOTARY PUBLIC NO. 0ILY5071942 QUALIFIED IN WESTCHESTER COUNTY MY COMMISSION EXPIRES JANUARY 21, 1999 ALLONGE TO COMMERCIAL PROMISSORY NOTE Payor: VERMONT PURE HOLDINGS, LTD. and VERMONT PURE SPRINGS, INC. Payee: FIRST UNION NATIONAL BANK, as successor by merger to CoreStates Bank, N.A. (the "Bank') Date of NOTE: April 8, 1998 Original Principal Amount $2,000,000 BACKGROUND A.The Bank is the holder of a certain Commercial Promissory Note executed on or about April 8, 1998, and executed and delivered to the Bank by the Borrower in the original principal amount of $2,000,000 (the "Note"). B.The Borrower has requested that the Bank increase the loan availability evidenced by the Note from $2,000,000 to $3,000,000, as set forth in that certain First Amendment to Loan and Security Agreement dated the date hereof between the Borrowers and the Bank (the "First Amendment"). C.As a condition to entering into the First Amendment, the Bank has required the Borrowers to execute this Allonge. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree: 1.This Allonge shall be and remain attached to and shall constitute an integral part of the Note. 2.Terms capitalized but not defined in this Allonge shall have the meanings ascribed to them respectively in the Note. 3.The dollar amount appearing at the top left comer of the Note and elsewhere in the Note,is amended and restated as follows: Three Million Dollars ($3,000,000). 4.Allonge, and all documents comprising or relating to this Allonge, shall be construed inaccordance with the laws in effort in the Commonwealth of Pennsylvania. 5.This Allonge, and all documents referred to in, comprising or relating to this Allonge (including, without limitation. the First Amendment) constitute the sole agreement Of the parties with respect to their subject matter and supersede all oral negotiations and prior writings with respect to their subject matter. 6.Except as modified by this Allonge, all of The terms and provisions of the Note are hereby ratified and confirmed, including, without limitation, those provisions authorizing the Bank to exercise a warrent of attorney to confess judgment subject to the terms and conditions set forth or referred to in the Note. IN WITNESS WHEREOF, the Borrowers have caused this Allonge to Commercial Promissory Note to be executed by its duly authorized officer as of the 20th day of January, 1999. VERMONT PURE HOLDINGS, LTD. Timothy G, Fallon, President VERMONT PURE SPRINGS, INC. By: Timothy G, Fallon, President STATE OF NEW YORK COUNTY OF WESTCHESTER On this 20th day of January, 1999, before me, a notary public, the undersigned officer, personally appeared Timothy G. Fallon, who acknowledged himself to be the President of Vermont Pure Holdings, Ltd., Vermont Pure Springs, Inc., Excelsior Springs Water Company, Inc. and A.M. Fridays, Inc., a Pennsylvania corporation, and that he as such officer, being authorized to do so, executed the First Amendment to Loan and Security Agreement and Allonge to Commercial Promissory Note for the purposes therein contained by singing the name of the corporation by himself as such officer. IN WITNESS WHEREFOR, I have hereunto set my hand and official seal. Notary Public My commission expires: LISA ANN LYONS NOTARY PUBLIC, STATE OF NEW YORK NOTARY PUBLIC NO. 0ILY5071942 QUALIFIED IN WESTCHESTER COUNTY MY COMMISSION EXPIRES JANUARY 21, 1999 EX-10.25 5 10.25 AMENDED AND RESTATED SPRING WATER LICENSE AND SUPPLY AGREEMENT This Amended and Restated Spring Water License and Supply Agreement (the "AGREEMENT") IS BY AND BETWEEN PRISTINE MOUNTAIN SPRINGS OF VERMONT, INC., A VERMONT CORPORATION ("PMSV"), AND AMSOURCE, LLC, a New Hampshire limited liability company ("AMSO"). BACKGROUND 1. AMSO and PMSV are parties to a Priority Spring Water Supply Contract dated January 28, 1999, pursuant to which AMSO agreed to purchase from PMSV and PMSV agreed to sell to AMSO certain spring water (the "1/28/98 Supply Agreement"). 2. AMSO and PMSV now desire to amend and restate the 1/28/98 Supply Agreement in its entirety, on the terms and conditions hereinafter set forth N O W, T H E R E F O R E, In consideration of the premises and the mutual covenants and agreements herein set forth, and in reliance on the representations and warranties contained herein, the parties hereby agree as follows: SECTION 1. PURCHASE AND SALE: AMSO'S REQUIREMENTS. PMSV shall sell to AMSO and AMSO shall purchase from PMSV all of AMSO's requirements for spring water from PMSV's spring located on property in Stockbridge, Vermont (the "Water"). Further PMSV grants AMSO the right and license to enter the Stockbridge Property (as defined in Section 11 below) to take and purchase Water in accordance with the terms of this Agreement. PMSV covenants and agrees that during the term of this Agreement it will not enter into any contracts, commitments, arrangements, agreements or undertakings with other purchasers which would in any way impair, impede or prevent it from meeting all of AMSO's requirements for Water. SECTION 2. TERM: RENEWAL TERM. The initial term of this Agreement begins on January 4, 1999 and continues through December 31, 2023, unless sooner terminated, renewed or extended as hereinafter provided. AMSO shall have the option to renew this Agreement for an additional term beginning on January 1, 2024 and ending on January 15, 2049, on the same terms and conditions herein set forth, except with respect to the purchase price adjustment set forth in Section 3 hereof. AMSO's option to renew shall be exercised, if at all, by written notice form AMSO to PMSV given not later than six (6) months prior to the expiration of the initial term of this Agreement. SECTION 3. PRICE: ADJUSTMENT OF PRICE. AMSO shall pay to PMSV during the period from the date hereof through and including December 31, 2009 (the "Base Sales Price"): (a) During each calendar year, one and one-half cents ($0.015) per gallon of Water for gallons 1 - 3,000,000; (b) During each calendar year, one cent ($0.01) per gallon of Water for gallons 3,000,001 - 10,000,000; and (c) During each calendar year, eight tenths of a cent ($0.008) per gallon of Water for Gallons 10,000,000 or more. Thereafter, the Base Sales Price shall be reviewed every five years by the parties and adjusted accordingly to market conditions as mutually determined and agreed by the parties. If, by March 15 in years 2014, 2019, 2024, 2029, 2034, 2039 and 2044, the parties have not been able to agree upon an amount for the adjustment, the adjustment shall automatically be based on the average Consumer Price Index (CPI) increase or decrease during the immediately preceding five-year period. The Base Sales Price, as so adjusted, shall become the applicable sales price for the next succeeding five-year incremental period. PMSV shall invoice AMSO monthly for Water sold to AMSO during the preceding month, and AMSO shall pay each invoice within sixty (60) days after receipt thereof. SECTION 4. HOURS OF OPERATION. PMSV represents and warrants to AMSO that AMSO shall be entitled to take the Water by tanker truck at any time twenty-four (24) hours a day, seven days a week, without violation of any permits held by PMSV (all of which have been disclosed to AMSO) or applicable law. PMSV shall immediately notify AMSO of any changes in permits, provisions, restrictions or laws that would prohibit AMSO from taking Water during the times and days specified above, and AMSO shall have no liability to PMSV with respect to the foregoing indemnification until PMSV has so notified AMSO of any such changes. AMSO shall indemnify and hold PMSV harmless from any cost or expenses relating to any suits, controversies, actions or otherwise filed by any person, corporation, entity or other governmental BODY, WHETHER FEDERAL, STATE OR LOCAL, DUE TO ANY VIOLATION BY AMSO of any permit conditions or applicable laws relating to hours of operation after PMSV has notified AMSO of such conditions or changes in applicable law. SECTION 5. BULK WATER LOADING STATION. PMSV shall maintain its high volume loading facility (the "Bulk Water Loading Station") located on the Stockbridge Property (as defined in Section 11 below) in accordance with applicable industry and governmental regulations. PMSV shall make the Bulk Water Loading Station available to AMSO on a priority basis, and if the Bulk Loading Station is being repaired or if it is otherwise not available for any reason not in violation of PMSV's obligations under this Agreement, PMSV agrees to make available to AMSO the original facility on a priority basis. SECTION 6. TRANSPORTATION. AMSO shall be responsible for arranging for the transportation of all Water purchased from PMSV and PMSV shall have no liability or obligations with respect thereto. SECTION 7. COMPLIANCE WITH LAW. AMSO shall be responsible for obtaining and maintaining all federal, state and local permits and licenses that may be required by it in order for it to purchase, haul, bottle and distribute the Water. If any federal, state or local governmental authority imposes any requirements in connection with the sale of Water to AMSO which would require testing or equipment in addition to that presently performed or used by PMSV, AMSO shall so notify PMSV and PMSV shall immediately purchase the required equipment and/or commence the required testing. In the event the Water does not meet Vermont EPA standards, or if the water does not meet the then existing highest federal, state or local governmental standards imposed in areas in which AMSO distributes or intends to distribute, then AMSO shall have the right to purchase water from other acceptable sources until such time as PMSV, at its own expense, can return and sustain water quality to those water quality standards. In addition, AMSO shall be entitled to purchase water from other sources in the event PMSV is not able to meet all of AMSO's water supply needs. SECTION 8. REPRESENTATIONS AND WARRANTIES OF PMSV. PMSV represents and warrants to AMSO as follows: (a) It has authority to execute and perform this Agreement, and such performance will not violate, infringe or cause a default under any other contract, agreement, order, judgment or understanding by which it is legally bound or any law, order, regulation, writ or ruling by which it is bound or to which it or its business is subject. (b) it is a validly formed corporation in good standing under the laws of the State of Vermont. (c) The spring on the Stockbridge Property which is the subject of this Agreement (the "Spring") was pump tested in August, 1992 and showed a total flow of at least 900 gallons per minute. The water from the spring meets or exceeds the Vermont EPA water quality standards. PMSV knows of no change or other event that would make the foregoing test results inaccurate. (d) PMSV possesses all licenses, permits, franchises, easements or rights thereto, necessary to conduct PMSV's business as now conducted and as presently proposed to be conducted and to sell Water to AMSO, and is not in violation of any valid rights of others with respect to any of the foregoing. SECTION 9. REPRESENTATIONS AND WARRANTIES OF AMSO.. AMSO represents and warrants to PMSV as follows: (a) It has the authority to execute and perform this Agreement, and such performance will not violate, infringe or cause a default under any other contract, agreement, order, judgment or understanding by which it is legally bound or any law, order, regulation, writ or ruling by which it is bound or to which it or its business is subject. (b) it is a validly formed limited liability company in good standing under the laws of the State of New Hampshire. (c) AMSO possesses all licenses, permits, franchises, easements, or rights thereto, necessary to conduct AMSO's business as now conducted and as presently proposed to be conducted and to purchase Water to PMSV, and is not in violation of any valid rights of others with respect to any of the foregoing. SECTION 10. EVENTS OF DEFAULT. Upon the occurrence of any of the following events (each of which is herein called an "Event of Default"): (a) AMSO fails to make a scheduled payment for Water it purchases within ninety (90) days after the invoice therefor becomes due; (b) If AMSO or PMSV shall: 1. apply for or consent to the appointment of a receiver, trustee or liquidator of it or any of its property; 2. admit in writing its inability to pay its debts as they mature 3. make a general assignment or trust mortgage for the benefit of creditors; 4. file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or any arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, take any action for the purpose of effecting any of the foregoing; (c) If an order, judgment or decree shall be entered against either party by any court of competent jurisdiction, approving a petition seeking reorganization of such party, or appointing a receiver, trustee or liquidator of the party or of all or a substantial portion of its assets, and the same shall not be dismissed or discharged within one hundred eighty (180) days after notice thereof given by one party to the other; or (d) If any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of a party, and such judgment, writ, or similar process shall not be released, vacated, or fully bonded within one hundred eighty (180) days after its issue or levy; or (e) If default shall be made by either party in the performance or compliance with any of the agreements, terms, covenants or conditions in this Agreement, other than that referred to in the foregoing subparagraph (a) with respect to payments required to be made by AMSO, for a period of thirty (30) days after notice from non-breaching party to the other party specifying the items in default, or in the case of a default of which cannot with due diligence be cured within said thirty (30) day period, if the breaching party fails to commence within said thirty (30) day period the steps necessary to cure the same or thereafter to prosecute the curing of such default with due diligence (it being understood that the time of the breaching party within which to cure shall be extended for such period as may be necessary to complete the same with all due diligence); then, and in case of every such Event of Default, and at any time thereafter, the non-breaching party may, at its option elect to terminate this Agreement, effective on written notice to the other. No such termination shall relieve either party form the duty to perform all duties and obligations that accrued prior to the effective date of termination. SECTION 11. RIGHT OF FIRST REFUSAL. PMSV hereby grants to AMSO a right of first refusal to purchase and/or to lease the Spring and the land, premises and property on which the Spring is located, in Stockbridge, Vermont, together with all improvements thereon, as more particularly descried on Exhibit "A" hereto (the "Stockbridge Property"), during the term of this Agreement and any renewal or extension, on the following terms and conditions. If PMSV shall desire to sell or lease the Stockbridge Property and shall receive a bona fide written offer to acquire or lease the same, PMSV shall promptly transmit a copy of such offer to AMSO and shall offer to convey or lease the Stockbridge to AMSO, at the price and on the terms and conditions set forth in such bona fide offer. AMSO shall have thirty (30) days within which to accept such offer form PMSV, by giving written notice thereof to PMSV. In the event AMSO accepts such offer form PMSV, the parties shall fully and promptly comply with all terms of the contract so created. If AMSO does not so accept, PMSV shall have the right to transfer or lease the Stockbridge Property to the person or entity and at the price and upon the terms and conditions set forth in such bona fide offer received by PMSV, but only so long as such transfer or lease is effected within ninety (90) days after the date on which AMSO received such offer form PMSV. The Stockbridge Property in the hands of such transferee or transferees shall continue to be subject to the restrictions of this section. SECTION 12. PERSONAL PROPERTY: TAXES. AMSO is solely responsible for all of its personal property placed upon the Stockbridge Property during the term of this Agreement, which responsibility includes, by way of illustration and not by way of limitation, payment of all taxes and fees assessed against such personal property and insurance for all personal property. Further at the expiration or earlier termination of this Agreement, AMSO shall remove its personal property from Stockbridge Property exercising due care not to damage the Stockbridge Property by such removal. PMSV shall be entitled to all tax deductions form any sums for depletion, depreciation or amortization with respect to the Stockbridge Property. SECTION 13. FORCE MAJEURE. In the event that either party shall be delayed, hindered in or prevented from the performance of any act required hereunder, by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason beyond its control (including the act, failure to act or default of the other party), then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. If, despite all diligent efforts by PMSV to correct such event or circumstance, such event or circumstance continues for more than one hundred eighty (180) days, AMSO, at its option may elect to terminate this Agreement. No such termination shall relieve either party form the duty to perform all duties and obligations that accrued prior to the effective date of termination. SECTION 14. ADVERTISING AND PACKAGING. No advertising materials or other information distributed by AMSO about the Water shall contain any disparaging remarks about other purchases of Water from PMSV. PMSV covenants and agrees with AMSO to include a provision comparable to this Section 14 in all agreements, arrangements, commitments and undertakings PMSV may have with all of its purchasers and others with whom it does business os that AMSO may become a third party beneficiary with respect thereto. SECTION 15. NO WAIVER. Neither the failure of a party to exercise, nor the delay of a party in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise or any right, power or privilege preclude any other or further exercise of any other right, power or privilege. SECTION 16. SPECIFIC PERFORMANCE. The parties acknowledge that it would be difficult if not impossible to measure in money alone the damages that could result from failure to perform the obligations created by this Agreement. Accordingly, if any party bound by or entitled to the benefit of this Agreement shall institute an action or proceeding or enforce it, any person against whom such action or proceeding is brought hereby waives the claim or defense that the party bringing such action has an adequate remedy at law, and irrevocably agrees not to urge in any such action or proceeding the claim or defense that such a remedy exists. The parties intend and agree that upon the institution of any such action or proceeding, the provisions of this Agreement shall be required to be specifically performed. SECTION 17. FORUM SELECTION: VENUE. All questions or controversies arising out of or in any way relating to this Agreement or any other aspect of the commercial relationships between the parties shall be submitted to the United States District Court for the District of Vermont or, in the event that District Court is without subject matter to the courts of the State of Vermont having subject matter jurisdiction, and the parties submit themselves to the personal jurisdiction of such District Court or Vermont State Court, as the case may be, and any service of a summons, process or other paper in connection with such proceedings may be made by giving notice as provided in this Agreement. Nothing herein contained shall be construed as intended to preclude or in any way prohibit either party form institution and otherwise prosecuting to judgment a lawsuit in any court of competent jurisdiction to effect the collection of any sums due it or to enforce any right or remedy arising hereunder or otherwise. SECTION 18. COSTS OF SUIT AND ENFORCEMENT. If either party resorts to suit or other legal proceedings to enforce any right or remedy hereunder, the non-prevailing party agrees to pay the prevailing party's costs of suit and enforcement, including reasonable attorneys' fees. SECTION 19. NOTICES. Any notice or other communication to be given hereunder shall be in writing and mailed or telecopied to such part at the address or number set forth below: If to AMSO: AmSource, LLC 135 Maple Avenue Claremont, NH 03743 Telephone No.: (603) 543-0000 Telecopier No.: (603) 543-0040 If to PMSV: Pristine Mountain Springs of Vermont, Inc. P.O. Box 662 Pittsfield, VT 05762 Telephone NO.: (802) 746-8146 Telecopier No.: (802) 746-7935 or to such other person, address or number as the party entitled to such notice or communication shall have specified by notice to the other party given in accordance with the provisions of this Section. Any such notice or other communication shall be deemed given: (i) if mailed, when deposited in the mail, properly addressed and with postage prepaid; or (ii) if sent by telecopy, when transmitted. SECTION 20. REMEDIES CUMULATIVE. The rights and remedies herein are cumulative, and not exclusive of other rights and remedies which may be granted or provided by law. SECTION 21. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be construed to place the parties in the relationship of partners or joint ventureres, or of agency or employment, and, except to the extent, if at all, otherwise expressly provided herein, no party shall have the power to obligate or bind any other party in any manner whatsoever. SECTION 22. ASSIGNABILITY. PMSV shall not assign this Agreement, by operation of law or otherwise, without the prior written consent of AMSO (which consent shall not be unreasonably withheld or delayed, due to consideration being given to the financial stature and ability to conduct the business contemplated of such proposed assignee). AMSO, and its successors and assigns, may assign this Agreement, by operation of law otherwise, on notice to PMSV. This Agreement shall bind and inure to the benefit of the parties and their respective permitted successors and assigns. This Agreement is intended to run with the land and shall be binding upon any purchaser of the Stockbridge Property. SECTION 23. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Vermont. SECTION 24. FURTHER ASSURANCES. The parties agree to execute, acknowledge, if necessary, and deliver such documents, certificates or other instruments and take such other actions as may be reasonably required from time to time to carry out the intents and purposes of this Agreement. SECTION 25. CAPTIONS: HEADINGS. The caption and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of such sections, nor in any way affect this Agreement or have any substantive effect. SECTION 26. REFORMATION: SEVERABILITY. If any of the terms, covenants or conditions set forth herein are found by a court to be unenforceable, then and in that case such provision shall nevertheless remain effective but shall be considered amended in such manner so as to make the provision enforceable as determined by such court and as so amended shall be enforced. If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law. SECTION 27. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 28. SHORT-FORM AGREEMENT TO BE RECORDED. The parties expressly agree that a short-form of this Agreement may be recorded by AMSO in the land records in the office of the Town Clerk of Stockbridge, Vermont. SECTION 29. ENTIRE AGREEMENT: AMENDMENT. This Agreement embodies the entire agreement and understanding between the parties relating to the subject matter hereof. This Agreement may not be amended, waived or discharged except by an instrument in writing executed by the party against whom such amendment, waiver or discharge is to be enforced. IN WITNESS WHEREOF, the parties have executed or cause this Agreement to be executed as of the __ day of April, 1999. IN PRESENCE OF: AMSOURCE, LLC. ____________________________________ By:________________________________ Witness Duly Authorized Agent _____________________________________ By:________________________________ Witness Duly Authorized Agent STATE OF NEW HAMPSHIRE COUNTY OF SULLIVAN, SS. At Claremont, in said County and State, this __ day of April, 1999, personally appeared BARTON E. LORD, DULY AUTHORIZED AGENT OF AMSOURCE, LLC, and he acknowledged this INSTRUMENT, BY HIM SIGNED, TO BE HIS FREE ACT AND DEED AND THE FREE ACT AND DEED OF AMSOURCE, LLC. Before me, _________________________ My commission expires: STATE OF NEW HAMPSHIRE COUNTY OF SULLIVAN, SS. At Claremont, in said County and State, this __ day of April, 1999, personally appeared RONALD E. COLTON, DULY AUTHORIZED AGENT OF PRISTINE MOUNTAIN SPRINGS OF VERMONT, and he acknowledged this instrument, by him signed, to be his free act and deed AND THE FREE ACT AND DEED OF PRISTINE MOUNTAIN SPRINGS OF VERMONT. Before me, _________________________ My commission expires: EXHIBIT "A" PARCEL A Being all and the same lands and premises conveyed to Pristine Mountain Springs of Vermont, Inc. by Warranty Deed of Ronald E. Colton dated July 31, 1995 and recorded in Book 52, Page 115 of the Town of Stockbridge Land Records and being more particularly described therein as follows: Being all and the same lands and premises conveyed to Ronald E. Colton by Warrranty Deed of Michael B. Barrett dated May 6, 1994 and recorded in Book 51 at page 30 of the Land Records of the Town of Stockbridge and being more particularly described as follows: Being all and the same lands and premises conveyed to Michael B. Barrett, by Warranty Deed of Geoffrey O. Ventura dated February 13, 1987, and which is recorded at Book 43, Pages 332-336 in the Land Records of the Town of Stockbrdige and being more particularly described as follows: Being a portion of all and the same lands and premises conveyed to Geoffrey O. Ventura by QuitClaim Deed of Delores O. Ventura dated July l9, 1984 and recorded in the Town of Stockbridge Land Records in Book 40 at Pages 632-634. Said lands and premises are more particularly described as follows: Being a portion of the Delores O. and Geoffrey O. Ventura property located on the southerly side OF VERMONT ROUTE NO. 100 IN THE TOWN OF STOCKBRIDGE, VERMONT HEREINAFTER REFERRED TO AS LOT NO. B-1 and described as follows: Beginning at an iron pipe set in the westerly line of the property belonging to John C. and Henrietta W. and Lloyd H. Whit which iron pipe marks the southeasterly corner of Lot B-2 of the Delores O. and Geoffrey Ventura property (said point of beginning being on a bearing of South 21' 16' 15" West at a distance of three hundred seventy seven and seventy three one hundredths (377.73) feet from an iron pipe set in the southerly line of Vermont Route No. 100 which iron pipe marks the northwesterly corner of the property belonging to John C. and Henrietta W. and Lloyd H. White and also marks the northeasterly corner of the property belonging to the said Ventura in the Town of Stockbridge, County of Windsor, State of Vermont); thence from the point of beginning South 21' 16' 15" West a distance of eighty eight and zero one hundredths (88.00) feet along a portion of the property belonging to John C. and Henrietta W. and Lloyd H. White to an iron pipe (existing) set in the westerly line of the said White property and marking the northeasterly corner of the property belonging to Robert E. Jr. and Janet A. Lee; thence North 57' 52' 05" West a distance of two hundred ninety seven and zero one hundredths (297.00) feet along the northerly line of the property belonging to Robert E. Jr. and Janet A. Lee and the northerly line of the property belonging to Robert P. Flannigan, et al and a portion of the northerly line of the property belonging to Stratton Estates, Inc. to an iron pipe set in an inner corner in the northerly line of the said Stratton Estates, Inc. property; thence South 37' 22' 55" West a distance of twenty one and zero one hundredths (21.00) feet along a jog in the northerly line of Stratton Estates, Inc. property to an iron pipe; thence North 52' 22' 05" West a distance of four hundred twenty eight and fourteen one hundredths (428.14) feet along the northerly line of the property belonging to the Stratton Estates, Inc. and the northerly line of the property belonging to Pach, Inc. and the northerly line of the property belonging to Dan R. Civiello and the northerly line of the property belonging to Mary Grace Civiello to an iron pipe set in a stone wall which marks the easterly line of the property belonging to John S. Jr. and Mary Louise Bernhard and the easterly line of the property belonging to Frank and Cathryn Finizio and John A. and Marie G. Miko and the northerly line of the property belonging to Keith Blakeslee to an iron pipe set in the northerly line of the said Blakeslee property in a stone wall and marking the southwesterly corner of Parcel A of the property belonging to Delores O. and Geoffrey O. Ventura; thence South 39' 58' 45" East a distance of four hundred eleven and ninety seven one hundredths (411.97) feet along the southerly line of the said Parcel A to an iron pipe set in the southerly line of the said Parcel A and also marking the northwesterly corner of Lot B- 2 of the Delores O. and Geoffrey O. Ventura property; thence South 31' 14' 45" West a distance of one hundred twenty four and seventy four one hundredths (124.74) feet along the westerly line of the said Lot B-2 to an iron pipe set at the southeasterly corner of Lot B-2 of the Delores O. and Geoffrey O. Ventura Property; thence South 57' 52' 05" East a distance of three hundred sixty eight and zero one hundredths (368.00) feet along the southerly line of the said Lot B-2 to the point or place of beginning. All bearings in the description are based on magnetic North (Novermber 1983) and the above described parcel Lot B-1 Delores O. and Geoffrey O. Ventura Property Vermont Route No. 100- Stockbridge, Vermont contains three and zero one one hundredths (3.01) acres be the same more or less. Further reference is made to a survey plat (map) entitled Delores O. and Geoffrey O. Ventura Vermont Route No. 100 Stockbridge, Vermont Dated February 1984 (Parcel A Lots B-1, B-2and B-3 surveyed and added to this plan in April 1986). The survey was performed by Roberts & Franzoni, Inc.(Professional Engineers and Registered Land Surveyors) of Rutland, Vermont. There is included with the above described parcel a right-of-way 20 feet in width extending from the southerly line of Vermont Route No.100 through Lot B-3 of the Delores O. and Geoffrey O. Ventura property to the northerly line of the above described Lot B-1, said twenty foot right-of- ways are more particularly described as follows: Beginning at an iron pipe (flush) set in the southerly line of Vermont Route No. 100 said iron pipe being on a bearing of North 69' 03' 40" West at a distance of fifty six and zero one hundredths (56.00) feet from an iron pipe set in the southerly line of Vermont Route No.100 and marking the northwesterly corner of the property belonging to John C. and Henrietta W. and Lloyd H. White; thence from the point of beginning South 20' 56' 20" West a distance of twenty four and nine on hundredths (24.09) feet to an iron pipe (flush); thence South 69' 47' 45" West a distance of one hundred thirty one and twenty seven on hundredths (131.27) feet to an iron pipe (flush); thence South 47' 21' 20" West a distance of sixty and eighteen one hundredths (60.18) feet to an iron pipe (flush); thence continuing South 47' 21' 20" West a distance of eighty three and thirty two one hundredths (83.32) feet to an iron pipe (flush); thence South 40' 59' 35" West a distance of ninety five and twenty three one hundredths (95.23) feet to an iron pipe set in the northerly line of the above described Lot B-1; thence North 57' 52' 05" West a distance of twenty four one hundredths (20.24) feet along the northerly line of the above described Lot B-1 to an iron pipe set in the northerly line of the said Lot B-1; thence North 40' 59' 35" East a distance of ninety nine and forty six on hundredths (99.46) feet to an iron pipe (flush); thence North 47' 21' 20' East a distance of fifty four and ninety seven on hundredths (54.97) feet to an iron pipe (flush); thence South 81' 31' 20" West a distance of thirty three and fourteen one hundredths (33.14) feet to an iron pipe (flush); thence South 62' 14' 35" West a distance of one hundred forty nine and ninety seven one hundredths (149.97) feet to an iron pipe set in the northerly line of the above described Lot B-1, thence North 57' 52' 05" West a distance of twenty three and twelve one hundredths (23.12) feet along the northerly line of Lot B-1 of the property belonging to Delores O. and Geoffrey O. Ventura to an iron pipe set at the southwesterly corner of Lot B-2 of the Delores O. and Geoffrey O. Ventura property; thence North 62' 14' 35" East a distance of one hundred sixty four and ninety seven one hundredths (164.97) feet to an iron pipe (flush); thence North 81' 31' 20" East a distance of sixty six and zero one hundredths (66.00) feet to an iron pipe (flush); thence North 47' 21' 20' East a distance of fifty eight and zero one hundredths (58.00) feet to an iron pipe (flush); thence North 69' 47' 45" East a distance of one hundred twenty six and fifteen one hundredths (126.15) feet to an iron pipe (flush); thence North 20' 56' 20" East a distance of fifteen and zero one hundredths (15.00) feet to an iron pipe (flush) set in the southerly line of Vermont Route No. 100; thence South 69' 03' 40" East a distance of twenty and zero one hundredths (20.00) feet along the southerly line of Vermont Route No.100 to the point or place of beginning. The above described rights-of-ways shall be for common driveway and utility access to and from Route 100 to Lots B-1, B-2, and B-3, respectively, as shown on said survey plat. Grantor shall bear no cost nor be responsible for the construction or maintenance of a road or utilities upon said rights-of-way. The entire cost of construction and maintenance of a road over and upon the second right-of-way leading from a Y-intersection with the principal right-of-way to and from Route 100, and which said second right-of-way proceeds in a general southwesterly direction across the far westerly portion of Lot B-2 to Lot B-1, shall be borne exclusively by the owner of Lot B-1. The costs of construction and maintenance of a road or utilities over and upon the principal right-of-way leading to and from Route 100 shall be apportioned among the respective owners as follows: Owner Share of Road Cost Lot B-1 50% Lot B-2 35% Lot B-3 15% Nothing herein shall be constructed to require an owner to incur any utility costs unless that owner is going to use the utility lines constructed in the right-of-way. Provided, however, the first owner to construct a dwelling on his respective lot shall be responsible for the full costs of construction and maintenance of said road and utilities until such time as the other lot owners shall construct a dwelling on their respective lot whereupon the owner having borne the original cost of construction of the road shall be entitled to reimbursement in accord with the prorations specified above for the cost of construction of the road and utilities. The owner deciding to build first, shall give notice to the other owners and an estimate of costs prior to starting construction of the road. An owner shall only be responsible to pay his share of such construction expenses that can be accurately verified by the presentation of written paid receipts which describe the costs of that portion of work done for the joint portion of the right-of-way as opposed to any other work done on any driveway or other improvements outside of said joint right-of-way. Failure to pay the prorata share specified herein above within thirty (30) days of the time that payment is due shall give rise to a lien in favor of the owner having paid the original cost of construction. In the event that said owner first constructing has to resort to legal action to collect said construction costs, he or she shall be entitled to collect his attorney's fees and reasonable costs of suit. Reimbursement shall be due thirty (30) days after the date that an owner receives a building permit from the Town of Stockbridge or completes his foundation, whichever first occurs. Thereafter said owners shall share the costs of maintenance in accordance with the apportionment set forth herein. Said first owner to construct a dwelling shall not be entitled to receive any reimbursement for maintenance costs paid prior to the date of use by a second lot owner. Lots B-1, B-2, and B-3 as shown on said survey plat shall be subject to the following restrictions and covenants which shall be deemed covenants running with the land: 1. No mobile homes or trailers shall be permitted. 2. No commercial uses shall be permitted. 3.No dwelling shall be permitted except a single family residence dwelling and appurtenant out buildings 4. No farming or other commercial agricultural enterprise shall be permitted, including the raising of livestock. This covenant shall not be deemed to prohibit the keeping of pets of animals for pleasure or personal use. Said restrictions and covenants shall be binding upon and inure to the benefit of Grantor and Grantee, and their respective heirs and assigns, and shall be enforceable exclusively by Grantor and the respective owners of Lots B-1, B-2, and B-3. For purposes of reference to prior conveyances made by the late John V. and J. Lavern Dutton during lifetimes, and to which prior conveyances this conveyance is made subject, reference is made to the following: 1. Deed to State of Vermont for highway purposes dated November 5, 1936, and recorded in Book 29 at Page 302, Stockbridge Land Records; 2. Deed to Cecil White, part of the homefarm south of the Tweed River, dated September 10, 1946, recorded in Book 29, Page 103, of the said Land Records; 3. Deed to Mussey Estate for small parcel of land with spring thereon, dated October 11, 1949, and recorded in Book 29, Page 157, of said Land Records; 5. Deed to John J. Giorgetti, 6 acres of land, mor or less, recorded in Book 32, Page 63, of said Land Records; 6. Deed to John C. White of a right-of-way across the meadow 12 feet wide and 12 rods long recorded in Book 32, Page 60A of said Land Records; 7. Deed to Alice K. Turro of 50 acres, more or less, recorded in Book 32, Page 251 of said Land Records; 8. Easement deed to Pittsfield Electric Co. recorded in Book 27, Page 408, of said Land Records. Reference may be had to the above mentioned deeds and the deeds and references contained therein for a more particular description. PARCEL B Being all the same lands and premises conveyed to Pristine Mountain Springs of Vermont, Inc. by Warranty Deed of Ronald E. Colton and H. Jenette Colton, husband and wife, dated July 31, 1995 and recorded in Book 52, Page 130 of the Town of Stockbridge Land Records and being more particularly described therein as follows: Being all the same lands and premises conveyed to Ronald E. Colton and H. Jenette Colton, husband and wife, by Warranty Deed o f David L. North and Karen North, husband and wife, dated January 14, 1994 and recorded in Book 50 at Page 549 of the Town of Stockbridge Land Records and being more particularly described therein as follows: Being all the same lands and premises conveyed by David L. North to David L. North and Karen North, by Warranty Deed dated December 11, 1985, and recorded in Book 42 at Pages 128-29 of the Town of Stockbridge Land Records and being more particularly described therein as follows: Being all the same lands and premises conveyed by Lynne A. Holmes to David L. North, by Warranty Deed dated December 21, 1983, and recorded in Book 40 at Pages 254-56 of the Town of Stockbridge Land Records and being more particularly described therein as follows: Being all the same lands and premises conveyed to Lynne A. Holmes by Warranty Deed of Gerald E. Mickel, dated December 7, 1978, which is recorded in Book 37 at Pages 63-65 of the Land Records of the Town of Stockbridge and being more particularly described therein as follows: Being all the same lands and premises conveyed by Stratton Estates, Inc., to Gerald E. Mickel and Anne E. Mickel, his then wife, now deceased, by deed dated June 29, 1972, and recorded in Book 33, Pages 474 of the Town of Stockbridge, Vermont Land Records and more particularly described in said deed as follows: Beginning at an iron pin situated in the north line of Schaff-Haus Drive, which iron pin marks the southeast corner of Lot #1 as shown on a Revised Plan entitled "CHALET VILLAGE, REVISED PLAN-JOHN GIORGETTI-BUILDER-ROUTE 100-STOCKBRIDGE, VT' which revised Plan is dated June 30, 1967 and is on file in Stockbridge, Vermont Town Clerk's Office; thence running northerly along the east line of Lot #1 for a distance of 110 feet to the west line of Lot L; thence running northerly along the west line of Lot L for a distance of 15 feet to a point which marks the intersection of the west line of Lot L with the north line of Lot #1; thence running westerly along the south line of Lot #15 for a distance of 100 feet to the northeast corner of Lot #3; thence running southerly along the east line of Lot #3 for a distance of 125 feet to the north line of Schaff-Haus Drive; thence running easterly along the north line of Schaff-Haus Drive, for a distance of 106 feet, to the place of beginning. Meaning hereby to convey Lot #1 as shown on the aforesaid Plan and being a part of the same lands and premises conveyed by J ohn J. Giorgetti to Stratton Estates, Inc. by deed dated March 20, 1967 and recorded in Book 32, Page 428 of Stockbridge, Vermont Land Records. This conveyance is made subject to a pole line easement as conveyed by John Giorgetti to Central Vermont Public Service Corporation by instrument recorded November 18, 1961 in Book 32, Page 145 of the Stockbridge, Vermont Land Records and is also made subject to such rights of way and easements of record as affect the above described premises. To which deed and the record thereof and the deeds and records therein referred to, reference is hereby had for a more particular description of the premises hereby conveyed. And the Grantee, by the acceptance of this deed, covenants and agrees for herself, her heirs and assigns, to pay to Ronald E. Colton (the present owner of the water system transferred to him by Stratton Estates, Inc.), his heirs and assigns, the sum of $75.00 a year for water furnished by said Ronald E. Colton to the Grantee from the water system and pump house situated on Lot 1 of the aforesaid plan. This conveyance is made subject to an easement for water pipes, if any, as cross the above described premises and connect to the water system furnishing water to the chalets in the Chalet Village." PARCEL C Being all the same lands and premises conveyed by John C. White and Lloyd H. white to Pristine Mountain Springs of Vermont, inc. by Warranty Deed dated August 24, 1995 and recorded in book 52, 167 of the Town of Stockridge lands records and more particularly described therein as follows: Being a portion of the lands and premises conveyed to John. C. White, Henrietta W. White (now deceased) and Lloyd H. White by Warranty Deed and from John C. White and Henrietta W. White dated September 29, 1980 and recorded in Book 38, Page 200 of the land records of the Town of Stockridge, Vermont and being more particularly described as follows: "Being designate "Parcel B, 5.99 +/- acres, to be conveyed to Ronald E. Colton" as shown on a survey entitled "Division of a Portion of Lands of John C. White and Lloyd H. White", prepared by Michael Engineering Company, P.C. dated May 9, 1995 and bearing the seal and signature of Ralph J. Michael, State of Vermont R.L.S. No. 130. Said parcel herein conveyed is more particularly described below: Beginning at a point marked with an iron pipe driven in the ground of in the westerly boundary of lands of the herein grantors John C. White and Lloyd H. White, said point being the northeasterly corner of land of the herein grantee, Ronald E. Colton and the southeasterly corner of a parcel of land now or formerly of Christopher Antonucci; thence South 21 degrees 19 minutes 50 seconds West along land of said Ronald E. Colton 88.19 feet to a point marked with an iron pin driven in the ground at the northeasterly corner of land new or formerly Jane Spindis and Robert Gore; thence South 21 degrees 13 minutes 05 seconds West along said Spindis and Gore land 103.98 feet to a point marked with an iron pin driven in the ground; thence South 71 degrees 15 minutes 50 seconds East in a straight line through lands herein grantors 555.14 feet to a point marked with an iron pin driven in the ground; thence North 19 degrees 13 minutes 35 seconds East in a straight line through land of the herein grantors 561.67 feet to a point marked with an iron pin supposed to be in the southerly boundary of the public highway known as Vermont Route 100, so called; thence North 70 degrees 16 minutes 15 seconds West along the southerly boundary of said highway 315.79 feet to a point marked with an iron pin driven in the ground; thence South 47 degrees 09 minutes 10 seconds West in straight line through lands of the herein grantors 428.13 feet to a point marked with an iron pin driven in the ground; thence North 68 degrees 45 minutes 35 seconds West in a straight line through lands of the herein grantors 32.00 feet to the point and place of beginning and contains 5.99 acres by measure. PARCEL D Being all and the same lands and premises conveyed to Pristine Springs of Vermont, Inc. by Warranty Deed of Ronald E. Colton dated July 31, 1995 and recorded in Book 52, Page 148 of the Town of Stockbridge Land Records and being more particularly described therein as follows: Being all and the same lands and premises conveyed by John J. Giorgetti and Mary C. Giorgetti, Husband and wife, to Ronald E. Colton by Warranty Deed dated November 19, 1977 and recorded in Book 36 at Page 174 in the Town of Stockbridge Land Records and being more particularly described therein as follows: "Beginning at the southeasterly corner of Lot No. 1 and the southwesterly corner of lot L as shown on plan entitled "CHALET VILLAGE REVISED PLAN JOHN GIORGETTI - BUILDER ROUTE 100 STOCKBRIDGE, VT. SCALE 1"=60' DATED JUNE 30, 1967" which plan is on file in the office of the Stockbridge, Vermont Town Clerk, said point of beginning being situated in the north line of Schaff-Haus Drive, so-called, in Chalet Village, thence running north 24 degrees 00' East along the east line of Lot No. 1 and the west line of Lot L for a distance of 115 feet, more or less, to a point, thence South 40 degrees 30' East for a distance of 110 feet, more or less, to a point in the north line of Schaff-Haus Drive, thence South 45 degrees 30' East along Schiff-Haus Drive for a distance of 34 feet, more or less, to the place of beginning." "Meaning by these presents to convey a triangular piece of land situated on the easterly portion of Lot No. 1 and westerly of Lot L and being a part of those lands and premises conveyed by John J. Giorgetti to Stratton Estates, inc. by deed dated March 20, 1967 and recorded in Book 32, Page 428 of Stockbridge, Vermont Land Records and also being a portion of those lands and premises conveyed by Stratton Estates, inc. to john J. Giorgetti and Mary C. Giorgetti, husband and wife, by deed dated October 20, 1977and recorded in Book 36, Page 97-9 of Stockbridge Vermont land Records." "This conveyance is made subject to any rights and easements of records as may affect the premises hereby conveyed." "Also conveying the building situated on the above described premises, together with the entire water system as heretofore operated by Stratton Estates, Inc. consisting of, but not limited to, the well, the water pipes therefrom to the pressure tank, thence to all of the Chalets located in Chalet Village. Also hereby conveying and transferring all of the equipment used in the operation of said water system and presently housed in the building on the aforesaid triangular piece of land, also all of the plastic piping, fittings and other personal property therein located to be used in the operation and maintenance of said water system. Also conveying and transferring the metal building now situate on Lot No. 1 subject to the proviso, however, that the Grantee, his heirs and assigns, shall be obligated to remove said building from its present location upon the request of the owner of said lot No. 1. And the Grantee, by the acceptance of this deed, does for himself, his heirs, executors, administrators and assigns, covenant and agree to the chalets located in Chalet Village as well as to the Stockbridge General Store adjacent thereto upon the terms and conditions recited in the deeds from Stratton Estates, Inc. and by John J. Giorgetti and Mary C. Giorgetti conveying the lots upon which said chalets are situated, to various grantees, which deeds are of record in the Stockbridge Town Clerk's Office, it being understood that there is no written agreement with the Stockbridge General Store for the furnishing of water and the Grantee may, if he sees fit, work out a written contract for water with said owner. Also conveying and transferring whatever interest the Grantors have in the snowplowing business heretofore conducted by Stratton Estates, Inc. with the owners of the chalets in Chalet Village, it being understood that the Grantee, his heirs or assigns, shall use their own equipment and make their own arrangements for future business with said owners, if necessary." EX-10.26 6 10.26 LOAN PURCHASE AGREEMENT This Loan Purchase Agreement ("Agreement' is by and between MARCON CAPITAL CORPORATION, a Connecticut corporation and Small Business Investment Company licensed under the Small Business Investment Act of 1958, as amended ("Marcon") and VERMONT PURE HOLDINGS, LTD., a Delaware corporation with an address of 70 West Red Oak Lane, White Plains, New York 106043602 (-VP'). BACKGROUND 1. Marcon has extended financing to Amsource, UC (the "Borrower). in the principal amount of Seven Hundred Thousand Dollars ($700,000.00) (the "Loan"). 'Me Loan has taken the form of the purchase by Marcon of a convertible debenture issued by the Borrower in the original principal amount of Six Hundred Fifty Thousand Dollars ($650,000-00) (the 'Debenture), pursuant to a Debenture Purchase Agreement dated as of December 29, 1998 by and among the Borrower, Marcon, Pristine Mountain Springs of Vermont Inc. and certain individual guarantors identified therein (the "Debenture Purchase Agreement"), an Option Purchase Agreement by and between Marcon and the Borrower dated as of March 31, 1999 (the "Option Purchase Agreement), and a promissory note issued in connection therewith dated as of March 31, 1999 (the "Option Note) dated as of @h 31, 1999. The proceeds of the Loan were to be used by the Borrower for ,working capital and retirement of certain liabilities. Repayment of the Loan is secured by various types of collateral. 2. VP has agreed to purchase the Loan from Marcon pursuant to this Agreement. Unless otherwise defined herein, all capitalized terms shall have the meanings provided them in the Debenture Purchase Agreement For purposes of this Agreemen4 the term Loan Documents shall specifically include all agreements, documents, certificates and instruments executed and delivered in connection with the Option Purchase Agreement and the Option Note. NOW, THEREFORE, In consideration of the premises and the mutual covenants and agreements herein set forth, and in reliance on the representations and warranties contained herein, the parties hereby agree as follows: SECTION 1. PURCHASE OF THE-INTEREST. At the Closing, as that term is defined in Section 3 below, Marcon agrees to sell, transfer and convey all of its right, title and interest in and to the Loan, free and clear from all liens, claims and encumbrances whatsoever, to VP by execution and delivery of the Assignment in the form annexed hereto as Schedule "A" (the "Assignment'). Marcon agrees to execute and deliver such further documents and to take such other actions as are necessary to confirm the sale of the Loan to VP. SECTION 2. PURCHASE PRICE AND PAYMENT. At closing, VP shall execute and deliver a convertible debenture in the principal amount of Nine Hundred Seventy Five Thousand Dollars ($975,000.00) (the "VP Debenture'@ to Marcon as payment in full for the Loan. Payment and performance of the VP Debenture shall be secured by a first priority security interest in the Loan, as set forth in Section 4 below. SECTION 3. !CLOSING. The closing of the transaction shall take place effective as of September ' )O, 1999 at the offices of Gravel and Shea, 76 St. Paul Street, 7th Floor, Corporate Plaza, Burlington, Vermont 05401, or at such other time and place as may be mutually agreed upon by the parties. At the closing, Marcon and VP shall execute and deliver all documents, agreements, instruments and certificates as may be necessary to consummate the transaction as described herein, including the Assignment and the VP Debenture. SECTION 4. SECURITY INTEREST. VP hereby grants to Marcon a first priority security interest and lien in the Loan and the Loan Documents to secure the payment and performance by VP of its obligations under the VP Debenture, and this Agreement pursuant to and in accordance with the provisions of the Uniform Commercial Code. VP agrees to execute and deliver such UCC-1 financing statements, and other documents and instrument as are necessary to perfect and confirm such security interest and lien. Marcon shall be entitled to all rights and remedies of a secured party under the Uniform Commercial Code. VP will not create, incur, assume, or suffer to exis4 or permit any subsidiary to create, incur, assume or suffer to exist, any lien, mortgage, pledge, encumbrance, security interest, attachment or change of any kind upon the Loan without the prior written consent of Marcon. SECTION 5. REPRESENTATIONS AND WARRANTIES, (a) Marcon hereby represents and warrants that it has good and marketable title to the Loan, free and clear from any lien, claim or encumbrance whatsoever. (b) Marcon hereby represents and warrants that the agreements, documents, certificates, and instruments 'set forth in Schedule 'B' attached constitute all material agreements, documents, certificates, and instruments with respect to the Loan, the Debenture Purchase Agreement, and the Loan Documents, and that Marcon has not entered into any agreement to modify the terms and conditions of the Debenture, the Debenture Purchase Agreement or any Loan Document except as set forth on Schedule "B" attached. (C) Marcon hereby represents and wan-ants that it has provided an acceleration notice with respect to the Loan, as set forth in its letter dated July 28, 1999, and that neither the Borrower nor any Guarantor, nor any of their representatives has made any written assertion that Marcon has breached any of its obligations under the Debenture, the Purchase Agreement, or any Loan Document. Marcon further represents and warrant that on September 10, 1999, the Borrower reaffirmed its intention to retire the Loan in full and has represented to Marcon that it is actively seeking financing sufficient to do so, and that the Borro,6ver has made no payments to Marcon since the date of the acceleration notice. (d) Marcon hereby represents and warrants that an Event of Default has occurred and is continuing under the Debenture Purchase Agreement. (e) Marcon hereby represents and wan-ants that, as of September 30, 1999, its claims against the Borrower are as set forth on Schedule 'C" attached, and include the following: (I) principal and interest under the Debenture, including default interest, which as of September 30, 1999 total S724,110.04. (I I) principal and interest under the Optio Note, which as of September 30 1999 total $53,519.43. (iii) any residual value of the option rights retaine by Marcon under the Option Purchase Agreement. (iv) any late fees, prepayment premiums, or forbearance fees due from the Borrower under the Debenture or the Debenture Purchase Agreement which as of September 30, 1999 total $80,900.1 1. (v) any consulting and monitoring- fees to be paid by the Borrower to Marcon, pursuant to the Debenture Purchase Agreement or the Monitoring Agreement executed and delivered in connection therewith which, as of September 30, 1999 total $9,500.00. (vi) any reimbursements of Marcon's out-of-pocket expenses, including but not limited to legal fees and expenses, due from the Borrower under the Debenture Purchase Agreement which as of September 30, 1999 total $36,949.75. (f) VP hereby represents and warrants in favor of Marcon as follows: (I) VP has the corporate power and authority to execute, deliver and perform this Agreement, to issue the VP Debenture, and to and to issue, sell and deliver shares of its Common Stock issuable upon conversion of the VP Debenture (the 'Conversion Shares). (ii) 'ne Conversion Shares have been duly reserved for issuance upon conversion of the VP Debenture, and, when so issued, will be duly authorized, validly issued, full paid and nonassessable shares of Common Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through VP. (g) Except as set forth above in this Section 5, and in Section 19 below, neither Marcon nor VP has made to the other any warranty or representation, expressed or implied, with respect to the loan transaction, the Loan, the Debenture, the Debenture Purchase Agreement, the adequacy of security, the existing, or future solvency or financial worth of the Borrower, the ability of the Borrower to repay the Loan, the Debenture, or any other document or instrument received by it in connection with the Loan. It is acknowledged by the parties hereto that the Loan carries a high degree of risk, and that it is possible that the Borrower may default on its obligations under the Loan, which may result in a bankruptcy case and/or foreclosure action and/or a deterioration of the collateral for the Loan. It may not be possible to collect the full principal loan balance and/or accrued interest, and/or other amounts due with respect to the Loan. All information, data- projections and other materials heretofore supplied to or by VP has been extrapolated from material supplied by the Borrower or due diligence. VP acknowledges and agrees that Marcon has not and makes no representation or warranty as to the nature and quality of such information. VP acknowledges and agrees that it has had an opportunity to make and have made such investigations as it has deemed necessary under the circumstances. SECTION 6. COVENANTS. 3 - (a) VP covenants and agrees to utilize all commercially reasonable efforts to maintain the listing of the shares of its common stock into which the VP Debenture is convertible (the "Common Stock") on the American Stock Exchange, the New York Stock Exchange, the National Association of Securities Dealers Automatic Quotation System, or another nationally recognized stock exchange reasonably satisfactory to Marcon. (b) VP shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the VP Debenture, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the VP Debenture. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the VP Debenture, VP will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. SECTION 7. REGISTRATION AND SALE RIGHTS. (A) OPPORTUNITY REGISTER AND SELL. If at any time VP determines to register any shares of its Common Stock by filing a registration statement in compliance with the Securities Act, Marcon will be given 60 days prior notice thereof and will be afforded the opportunity to include in the same registration and to sell as part of any related offering of such shares, a percentage of the shares issuable upon conversion of the Debenture equal to the highest percentage of shares owned by any then current shareholder (or holder of rights to acquire or convert into shams) which such shareholder had the right to include in such registration and sale, subject to usual and customary cutbacks and limitations which may be imposed by VP and its underwaters; provided, however, that in any case Marcon shall be permitted to register and sell at least the same percentage of shares (including in such calculation all rights to acquire shares or to convert into shares) that are actually registered and sold by any other shareholder. Such right shall apply to each registration and sale of shares effected by VP for as long as the Debenture is outstanding (other than those effected pursuant to a Registration Statement filed on Form S-4, or on Form S-8). (B) INDEMNIFICATION. No shares to be issued on conversion o Debentures shall be included in any registration unless Marcon furnishes to VP and the underwriter or selling agent all reasonable information requested by them and agree to indemnify VP and the underwriter or selling agent against liability arising out of information furnished by Marcon for inclusion in the registration statement (at which time Marcon will receive a similar cross indemnification from VP and the underwriter). (C) NO REQUIREMENT TO FILE OR PROSECUTE REGISTRATION. VP shall not be required at any time to file a registration statement or to prosecute a filing to effectiveness, may determine not to file even though notice has been given pursuant to Section 6(a) or may withdraw a registration after it has been filed. (D) RULE 144 INFORMATION. VP will make timely all filings required under the Securities Exchange Act of 1934 so as to enable the holders of shares into which the Debentures may be or may have been converted to sell such shares under Securities and Exchange Commission Rule 144 to the extent that the benefits of that rule are otherwise available to them. (E) UNDERWRITER'S COMMISSIONS. If shares into whic the Debenture is convertible are included in any underwriting hereunder, Marcon shall pay its pro rata share of the underwriter's commissions or discounts, but shall not be responsible for legal fees, printing costs and other fees and expenses except to the extent the same demonstrably increase by reason of inclusion of such shares in the underwriting. (F) TERMINATION OF REGISTRATION AND SALE RIGHTS. The registration and sale rights provided for in this Section 7 shall expire and terminate on September 30, 2009. SECTION 8. EVENTS OF DEFAULT Each of the Following events shall constitute an 'Event of Default, hereunder (a) VP shall default in making any payment of principal or interest when the same shall become due under the VP Debenture or any of the Loan Documents, and which default shall continue for ten (10) days after the due date therefor. (b) VP shall fail to comply with any term, covenant or agreement of this Agreement, which default shall continue for ten (10) days from the date of notice from Marcon. (C) Any Event of Default or other default under, or a failure to comply with any term or provision of the VP Debenture. (d) Commencement of proceedings under any bankruptc or insolvency law by or against VP or an inability of VP to pay its obligations when due. (e) Commencement of any levy or sale upon or execution or other proceedings of any nature against VP, including a foreclosure of a subordinate lien on the assets of the Loan whereby VP shall or may be deprived of title or right of possession to either property or any part thereof. (f) The dissolution or termination of existence of VP. SECTION 9. REMEDIES UPON DEFAULT. If an Event of Default shall occur, Marcon may declare the entire indebtedness evidenced by the VP Debenture and to be immediately due and payable, without presentment, protest, demand or notice of any kind, all of which, are hereby expressly waived by VP and may pursue any and all remedies provided for hereunder and in the VP Debenture or at law or in equity, including, without limitation, the following: (a) Exercise all rights of a secured party under th Uniform Commercial Code, or otherwise, with respect to the Loan; (b) If in the event of the sale or other dispositio of the Loan, the proceeds thereof are insufficient to pay all amounts to which Marcon is legally entitled, VP shall be liable for the deficiency and the reasonable fees of any attorneys employed by Marcon to collect such deficiency. VP agrees that if any notification of intended disposition of any of the Loan is required by law, such notification shall be deemed reasonably and properly given if deposited in the mails first class postage prepaid, addressed as provided in this Agreement at least ten (10) days before such intended disposition; (C) Set off and apply against any indebtedness or liability of VP to Marcon any indebtedness owing- from VP to Marcon at any time and from time to time either before or after maturity and without demand upon or notice to anyone; and No remedy conferred upon or reserved to Marcon herein is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and- shall be in addition to any other remedy given hereunder or in the VP Debenture or now or hereafter existing at law or in equity or by statute and the exercise of any remedy or remedies shall not be an election of the remedies. The remedies and rights of Marcon may be exercised concurrently, alone or in any combination. The foregoing recitation of the rights and remedies available to Marcon is not intended to constitute an express or implied guarantee or warranty as to the repayment of any amounts due from the Borrower, or any guarantors of the Borrower's obligations under the Debenture, the Debenture Purchase Agreement, or the Loan Documents. Section 10. Cooperation. VP agrees to cooperate with Marcon in effectuating the purposes hereof notwithstanding any unanticipated inability of VP to pay the VP Debenture or otherwise perform the obligations of this Agreement or the VP Debenture. Marcon agrees to cooperate with VP in confirming VP's right, title and interest in the Loan, by taking such further actions and executing and delivering such further agreements, DOCUMENTS, CERTIFICATES AND INSTRUMENTS AS MAY BE REASONABLY NECESSARY TO DO SO. MARCON FURTHER AGREES to assist VP in providing supplemental information and otherwise in collecting amounts due under the Loan, provided that Marcon shall be entitled to reasonable compensation for its efforts in this regard, in an amount to be mutually a- .,reed upon, and to reimbursement of all of its costs and expenses which it incurs in doing so. SECTION I 1. NOTICES. Any notice or other communication to be given hereunder shall be in writing and shall be mailed or telescoped to such party at the address or number set forth below: If to VP: Vermont Pure Holdings, Ltd. 70 West Re Oak Lane White Plains, New York- 10604-3602 Attn: President with a copy to:Michael J. Marks, Esq. Tarrant, Marks & Gillies 44 E State Street P.O. Box 1440 Montpelier, VT 05601-1440 Telephone No.: (802) 223-1112 Telecopier No.: (802) 223-6225 6 - If to Marcon: Marcon Capital Corporation 1470 Barnum Avenue Suite 301 Bridgepor4 CT 06610 Telephone No.: (203) 337@ Telecopier No.: (203) 3374449 with a copy to: Peter S. Erly, Esq. Gravel & Shea 76 St. Paul Street, 7th Floor Burlington, VT 05401 Telephone No.: (802) 658-0220 Telecopier No.: (802) 658-1456 or to such. other person, address or number as the party entitled to such notice or communication shall have specified by notice to the other party given in accordance with the provisions of this Section. Any such notice or other communication shall be deemed given: (I) if mailed, when deposited in the mail, property addressed and with postage prepaid; or (ii) if sent by telecopy, when transmitted. SECTION 12. COST OF SUIT OR ENFORCEMENT, If any Participant resorts to suit or other legal proceedings to enforce any right or remedy hereunder, the non-prevailing party agrees to pay the prevailing party's costs of suit and enforcement, including reasonable attorneys' fees. SECTION 13. GOVERning Law. This Agreement shall be construed in accordance with and governed by laws of the State of Connecticut, excepting- its principles of the law of conflict of la%vs. SECTION 14- COUNTERPART. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. SECTION 15. SUCCESSOR AND ASSIGNS. This Agreement shall be binding. upon and inure to the benefit of the parties, their respective successors, le-al representatives, and assigns. VP may not encumber, pledge or sell or assign the Loan (in fee, as collateral or otherwise), except to an entity owned or controlled by it, without the prior written consent of Marcon. Section 16. Arbitration (a) Subject to the provisions of Section 16(b) below, the parties agree that any dispute under this Agreement shall be resolved by final and binding arbitration in Burlington, Vermont under the then-existing and applicable Rules of the American Arbitration Association (the "Rules'). Notwithstanding any contrary provisions of the Rules, the parties reserve,,the right to designate an arbitrator by written agreement prior to the inception of any such proceeding-. Without intending to limit the power or authority of the arbitrator(s) in any such proceeding, the parties hereby consent and agree that such arbitrator(s) shall be vested with the full power and authority to order such equitable relief as die arbitrator(s) may deem proper- The parties consent to the jurisdiction of any court of competent jurisdiction for all purposes with respect to such arbitration, including enforcement of this Agreement to arbitrate and the entry of a judgment on any arbitration award, and further consent that any process, notice or motion may be served either personally or by certified mail, return receipt requested, provided a reasonable time for appearance is allowed. The prevailing 7 - 7 party in any such arbitration proceeding shall be entitled to an award of reasonable attorneys' fees, as determined by the arbitrator(s). The fees and expenses of the arbitrator(s) shall be done equally by the parties. The parties shall use all reasonable efforts to ensure that the arbitration is completed as promptly as reasonably possible, and IN ANY EVENT within not more than ninety (90) days after either party's request for arbitration hereunder. (b) Notwithstanding the provisions of Section 16(a) above, either of the parties may, at its option, bring an action in any court of competent jurisdiction ' with respect to exigent facts and circumstances which may warrant immediate injunctive or other equitable relief. Upon the completion of the adjudication of any request for immediate injunctive or other equitable relief any @er proceedings in respect thereof shall be referred for arbitration in ACCORDANCE WITH Section 16(a) above. SECTION 17. GENDER, Whenever the context so requires, the singular and plural shall be interpreted TO INCLUDE THE OTHER, AND THE neutral and male genders shall be interpreted to reflect the applicable genders. SECTION 18. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding BETWEEN THE PARTIES AND SUPERSEDES ALL prior agreements and understandings relating to the subject matter hereof. SECTION 19. AUTHORIZATION. Each of the parties warrants and represents that it is duly authorized to execute this Agreement and comply with its obligations hereunder. ACKNOWLEDGMENT OE ARBITRATION. THIS AGREEMENT CONTAINS AN AGREEMENT TO ARBITRATE. AFTER SIGNING THIS DOCUMENT, I UNDERSTAND THAT I WILL NOT BE ABLE TO BRING A LAWSUIT CONCERNING ANY DISPUTE THAT MAY ARISE WHICH IS COVERED BY THE ARBITRATION AGREEMENT, UNLESS IT INVOLVES A QUESTION OF CONSTITUTIONAL OR CIVIL RIGHTS. INSTEAD, I AGREE TO SUBMIT ANY SUCH DISPUTE TO AN IMPARTIAL ARBITRATOR. IN WITNESS WHEREOF, each of the parties have executed this Agreement by their duly authorized agents, as of the 30th day of September, 1999. IN PRESENCE OF: VERMONT PURE HOLDINGS, LTD. By: Witness Duly Authorized Agent Marcon CAPITAL CORPORATION Witness Todd M. Enright Vice President and Duly Authorized Agent STATE OF VERMONT Ss: COUNTY OF CHITTENDEN ) At Burlington, in said County and State, this ___ day of October 1999 personally appearing the Duty Authorized Agent of VERMONT PURE HOLDINGS, LTD, and he acknowledged this instrument, by him signed, to be his free act and deed and the free act and deed of VERMONT PURE HOLDINGS, LTD. Before me, Notary Public Notary commission issued in My commission expires: STATE OF VERMONT Ss: COUNTY OF CHITTENDEN At Burlington, in said County and State, this ___ day of ___, 1999 personally appeared ____ and Duly Authorized Agent of MARCON CAPITAL CORPORATION, and he acknowledged this instrument, by him signed, to be his free act and deed and the free act and deed of MARCON CAPITAL CORPORATION. Before me,. Notary Notary commission issued in County My commission expires: 9 - SCHEDULE "A" ASSIGNMENT OF LOAN KNOW ALL PERSONS BY THESE PRESENTS, that MARCON CAPITAL CORPORATION, a Connecticut corporation with a business address at 1401 Barnum Ave., Suite 3 0 1, Bridgeport Connecticut 066 10 (the Sellee inconsideration of Ten and More Dollars paid to its full satisfaction by (the 'Buyee), does hereby sell, grant, assign, convey and transfer to VERMONT PURER HOLDINGS, LTD. with an address of 70 West Red Oak Lane, White Plains, -New York- 10604-3602 all. of its right, tile and interest in and to a certain loan transaction with Amsource, LLC (the "Borrower") effected as of December 29, 1998 (the "Loan), together with its right, title and interest in and to all various documents, agreements, certificate rights, and instruments and executed or to be executed in connection with the Loan, all as more completely set forth Schedule "A-1" attached hereto (the "Loan Documents). TO HAVE AND TO HOLD the same unto the Buyer and its heirs, successors and assigns forever. IN WITNESS WHEREOF, the Scller has executed this Assignment of Loan as of the '30th day of September, 1999. IN PRESENCE OF: MARCON CAPITAL CORPORATION By: Duly Authorized Agent STATE OF COUNTY OF Ss. At Burlington in said County and State, this 1st day of October, 1999, personally APPEARED Duly Authorized Agent of MARCON CAPITAL CORPORATION, to me known, and he acknowledged this instrument, by him signed, to be her free act and deed and die free act and deed of MARCON CAPITAL CORPORATION. Before me, Notary Public Notary commission issued in My commission expires: SCHEDULE "B" AMSOURCE LOAN DOCUMENTS 1. Debenture Purchase Agreement by and among Marcon, the Borrower, Pristine Mountain Springs of Vermont, Inc. ("PMSV"), Lincoln Craighead, Ronald Colton and Barton Lord dated as of December 29, 1998. 2. Debenture made by the ]Borrower and payable to the order of Marcon in the original principal amount of $650,000 dated December 29, 1998. 3. Guaranty of PMSV dated as of December 29, 1998. 4. Guaranty of Ronald Colton dated as of December 29, 1998. 5. Guaranty of Barton Lord dated December 29, 1998. 6. Guaranty of Lincoln -Craighead dated December 29, 1998. 7. Security Agreement by and between the Borrower and Marco and all UCC- I financing statements FILED in any jurisdiction to secure the security interest created thereby, 8. Mortgage Deed made by PMSV in favor of Marcon dated as o December 29, 1998 with respect to certain real property located on Route 100 in Stockbridge, Vermont more completely described therein, together with any title insurance and certificates of title issued or obtained by Marcon in connection therewith. 9. Mortgage Deed made by the Borrower in favor of Marcon dated December 29, 1998 with respect to certain real property located on Maple Avenue in Claremont, New Hampshire and more completely described therein, together with any title insurance and certificates of title issued or obtained by Marcon in connection therewith. 10. Member Subordination Agreement by and between Ronald Colton and Marcon dated as of December 29, 1998. 11. Member Subordination Agreement by and between Lincoln Craighead and @con dated as of December 29, 1998. 12. Member Subordination Agreement by and between Barton Lor and Marcon dated December 29, 1998. 13. Legal opinion of Salmon and Nostrand dated as of December 29, 1998. 14. Legal opinion of Melvin B. Neisner, Jr. dated as of December 31, 1998. 15. Collateral Assignment of Spring Water Licensed Supply Agreement. 16. Legal opinion of Buckley and Zopf dated as of April 27, 1999. 17. Life Insurance Assignments dated March 12, 1999. 18. Option Purchase Agreement dated March 31, 1999. 19. Promissory Note dated March 31, 1999. 20. Forbearance and Standstill Agreement dated March 31, 1999. 21. Pledge and Security Agreement by Ronald Colton, Baron Lord and Lincoln Craighead dated December 29, 1998. 22. Employment Agreement of Barton Lord. 23. Employment Agreement of Lincoln Craighead. 24. Monitoring Agreement dated December 29, 19998. 25. Debenture Draw Requests. 26. Amended and Restated Water Supply Agreement dated March 31, 1999. 27. Membership Interest Purchase Option dated December 29,1998. 28. Affidavit of Borrower dated December 29, 1998. 29. Pristine Mountain Springs of Vermont, Inc- Security Agreement dated December 29, 1998 together with all UCC-1 Financing Statements. SCHEDULE "C" BORROWER: AMSOURCE, LLC PAYOFF DATE: 9/30/99 PRINCIPAL BALANCE: $700,000.00 ACCRUED INTEREST BALANCE: Debenture (through 9130/99): $74,110.04 Note (through 9120/99) S3,519.43 LATE PAYMENT FEES: 45-900 11 PREPAYMENT PENALTY: 32,500.00 FORBEARANCE FEES: 2,500.00 OTHER ADVANCES AND REIMBURSEMENTS: -Monitoring & Consulting $9,500.00 Audit Fee (incl. Travel) $3,08.24 FedEx charges & Wire Fees $104.50 Travel expenses .$4,151.46 17,594.20 LEGAL FEES: AMOUNT DUE $904,979433 PER DIEM: $389.58 ASSIGNMENT OF LOAN KNOW ALL PERSONS By THESE PRESENTS, that MARCON CAPITAL CORPORATION, a Connecticut corporation with a business address at 1401 Barnum Ave., Suite 301, Bridgeport, Connecticut 06610 (the "Seller), in consideration of Ten and More Dollars paid to its full satisfaction by (the "Buyer), does hereby sell, grant assign, convey and transfer to VERMONT PURE HOLDINGS LTD with an address of 70 West Red Oak Lane, White Plains, New York 10604-3602 all of its right, tile and interest in and to a certain loan transaction with AMSOURCE, LLC (the "Borrower") effected as of December 29, 1998 (the 'Loan"), together with its right, title and interest in and to all various documents, agreements, certificate rights, and instruments and executed or to be executed in connection with the Loan, all as more completely set forth Schedule 'A-1" attached hereto (the "Loan Documents'). TO HAVE AND TO HOLD the same unto the Buyer and its heirs, successors and assigns forever. IN WITNESS WHEREOF, the Seller has executed this Assignment of Loan as of the 30th day of September, 1999. IN PRESENCE OF: MARCON CAPITAL CORPORATION Witness Duly Authorized Agent STATE OF VERMONT COUNTY OF SS. At in said County and State, this l day of October, 1999, personally appeared Authorized Agent of MARCON CAPITAL - 0 CORPORATION, to me known, and he acknowledged this instrument, by him signed, to be her free act and deed and the free act and deed of MACON CAPITAL CORPORATION. Before me, Notary Public Notary commission issued in County My commission expires: SCHEDULE "A-1" AMSOURCE LOAN DOCUMENTS 1. Debenture Purchase Agreement by and among Marcon the Borrower, Pristine Mountain Springs of Vermont, Inc. ("PMSV"), Lincoln Craighead, Ronald Colton and Barton Lord dated as of December 29, 1998. 2. Debenture made by the Borrower and payable to the order of Marcon in the original principal .-amount of $650,000 dated December 29, 1998. 3. Guaranty of PMSV dated as of December 29, 1998, 4. Guaranty of Ronald Colton dated as of December 29, 1998. S. Guaranty of Barton Lord dated December 29, 1998. 6. Guaranty of Lincoln Craihead dated December 29, 1998. 7. Security Agreement by and between the Borrower and Marco and all UCC- I financing statements filed in any jurisdiction to secure the security interest created thereby. 8. Mortgage Deed made by PMSV in favor of Marcon dated as o December 29, 1998 with respect to certain real property located on Route 100 in Stockbridge, Vermont. more completely described therein, together with any title insurance and certificates of title issued or obtained by Marcon in connection therewith. 9. Mortgage Deed made by the Borrower in favor of Marcon dated December 29, 1998 with respect to certain real property located on Maple Avenue in Claremont, New Hampshire and more completely described therein, together with any title insurance and certificates of title issued or obtained by Marcon in connection therewith. 10. Member Subordination Agreement b and between Ronald Colton and Marcon dated as of December 29, 1998. 11. Member Subordination Agreement by and between Lincoln Craighead and Marcon dated as of December 29, 1998. 12. Member Subordination Agreement by and between Barton Lor and Marcon dated December 29, 1998. 13. Legal opinion of Salmon and Nostrand dated as of December 29, 1998. 14. Legal opinion of Melvin B. Neisner, Jr. dated as of December 31, 1998. 15. Collateral Assignment of Spring Water Licensed Supply Agreement. 16. Legal opinion of Buckley and Zopf dated as of April 27, 1999. 17. Life Insurance Assignments dated March 12, 1999. 18. Option Purchase Agreement Dated March 31, 1999. 19. Promissory Note Dated March 31, 1999. 20. Forbearance and Standstill Agreement Dated March 31, 1999. 21. Collateral Assignment of Spring Water License and Supply Agreement Dated April 13, 1999. Employment Agreement of Barton Lord. 23. Employment Agreement of Lincoln Craighead. 24. Monitoring Agreement dated December 29, 19998. 25. Debenture Draw Requests. 26. Amended and Restated Water Supply Agreement dated March 31, 1999. 27. Membership Interest Purchase Option dated December 29, 1998. 28. Affidavit of Borrower dated December 29, 1998. 29. Pristine Mountain Springs of Vermont, Inc. Security Agreement dated December 29, 1998 together with all UCC-1 Financing Statements. EX-10.27 7 10.27 VERMONT PURE HOLDINGS, LTD. Convertible Debenture Due 2001 $975,000.00 As of September 30, 1999 VERMONT PURE HOLDINGS, LTD., a corporation duly organized and existing under the laws of the State of Delaware ( herin called the "Company") for value recived herby promises to pay to the order of MARCOM CAPITAL CORPORATION or any other holder of this Debenture ( the "Holder"), in lawful money of the United States of America, the principal sum of Nine Hundred Seventy Five Thousand Dollars ($975,0.00). The principal sum hereof shall be due and payable on September 30, 2001 (the "Maturity Date"). This Debenture is issued pursuant to and in accordance with the terms of a Loan Purchase Ageement between the Compamy and the Holder, dated as of even date herwith (the "Purchase Agreement"). In the event of the failure of the Borrower to maintain the listing of the shares of common stock into which this Debenture is convertible on the American Stock Exchange, the New York Stock Exchange, of on the National Association of Securities Dealers Automatic Quotation System or another nationally recoginized stock exchange reasonabaly stisfactory to the Holder, this Debenture shall be deemed to be in default and shall be in default and shall be immediately due and payable in full. This Debenture may not be prepaid, redeemed or repurchassed whithout the prior writen consent of the Holder which may be withheld in its sole discretion. All payments on this Debenture shall be made in immediately available funds at 1470 Barnum Avenue, Suite 301, in Bridgeport, Connecticut 06610 or at such other address as the Holder may provide by written notice to the Company. The Compamy and all endorsers of this Debenture hereby waive presentment, demand, notice protest and all other demands and notices in connection with the delivery, acceptance, permormance or enforcement of this Debenture. This Debenture shall be convertible in accordance with the provisions of Exhibit "A" attached and by this reference made a part hereof. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal as of the date first above written. VERMONT PURE HOLDINGS,LTD. By Exhibit "A" Conversion of Debenture Section 1. CONVERSION PRIVILEGE. The Holder of this Debenture shall have the right at its option at any time to conver, subject to the terms and provisions hereof, the principal and any accured buy unpaid interest of such Debenture or any portion of the principal amount thereof into shares of the Company's common stock, $.001 per value, as listed for trading on one or more nationally recognized securities exchanges (the "Common Stock") at a conversion price equal to eighty five percent (85%) of the Average Closing Prices as defined below. For purposes of this Debenture, the Average Closing Price shall mean the average closing price of shares of the Company's Common Stock on the American Stock Exchange during the twenty (20) busivess days immediately preceding the Conversion Date, as defined below or if such stock is no longer listed for trading thereon, the primary nationally recognized stock exchange on which such shares of Common Stock are regularly traded, provided however, that if such successor bid prices at the close of trading on each such business day. The price, determined in accordance with the foregoing provisions of this Section is hereinafter referred to as the "Conversion Price". Section 2 EXERCISE OF CONVERSION PRIVILEGE. The Conversion Privilege shall be exercised, if at all, by surrender of the Debenture to the Company at its principal office, together with written notice of election executed by the holder of such Debenture, which may be in the form which is included with this Debenture (hereinafter referred to as the "Conversion Notice") to convert such Deenture or a specified portion thereof. Each Conversion Notice shall require the conversion of a minimum amount of principal and interest due under the Debenture of Fifty Thousand Dollars ($50,000) into Common Stock. The Conversion Notice shall specify the name or names in which the shares of Common Stock deliverable upon such conversion shall be registered, with the addresses of the persons (and taxpayer indentification numbers, if applicable) so named, and, if so required by the Company, accompanied by a written tnstrument or instruments of transfer in form satisfactory to the Company duly executed by the holder or his attorney duly authorized in writing. Execise of the Conversion Privilege may be made effective as of a later date, subject to the occurrence of one or more conditions precedent, which shall be stated in the Conversion Notice. In the event that one or more of such conditions precedent do no occur, the holder shall not be deemed to have exercised the Conversion Privilege. As promptly as practicable after surrender as herein provided of any Debenture for conversion and the recipt of the Conversion Notice relating thereto, subject to the occurrence of any conditions precedent as described in the Conversion Notice, the Company shall deliver or cause to be delivered to or upon the written order of the Holder, a certificate or certificates representing the number of fully paid and nonassessable shares of Common Stock into which such Debenture is to be converted in accordance with the provisions hereof, registered in such name or names as are specified in the Conversion Notice, together with any cash payable in respect of a fractional share, and a cash payment in the amount of the accused and umpaid interest on the Debenture, of such portion thereof as has been converted, to the conversion date. In case any Debenture shall be surrendered for partial conversion, the Company shall execute and deliver to or upon the written order of the Holder, without charg to such holder, a new Debenture or Debentures in authorized denominations inan aggregate principal amount equal to the unconverted portion of the surrendered Debenture. Except as otherwise provided in the immediately following sentence, such conversions shall be deemed to have been effected at the close of business on the date when such Debenture shall have been surrendered for conversion together with the Conversion Notice, so that the rights of the recieve the shares of Common Stock upon conversion of such Debenture shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time, and such Conversion shall be at the Conversion Price in effect at such time. The Holder shall have the right to condition any surrender of Debentures for conversion during the 60-day period between the date of notice of a call for redemption from the Company based on a proposed acquisition transaction, upon the successful completion of such transaction, such that if the transaction is not completed, the Conversion Notice shall be disregarded and the Company shall execute and deliver to the holder thereof a new Debenture or Debentures in the same aggregate amount as those surrendered for conversion. Section 3. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any Debenture. If any fractional interest in a share of Common Stock would, execpt for the provision of this Section be delivered upon the conversion of any Debenture, the Company shall, in lieu of delivering a fractinal share therefor pay the holder of surrendered Debenture an amount in cash determined by multiplying such fractional interest by the per share Conversion Price. Section 4. REORGANIZATION, RECLASSIFICATION, CONSOLIATION, MERGER OR SALE. If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Commn Stock, then as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby each holder of the Debentures shall thereafter have the right to recieve upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the conversion of the Debenture, such shares of stock, securities or asets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of such stock immediately theretofor so recievable had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to athe end that the provisions hereof (including, without limitation, provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of such Debentures )including and immediate adjustment, by reason of such consolidation or merger, of the Conversion Price to the value for the Common Stock reflected by the terms of such consolidation or merger if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation or merger). In the event of a merger or consolidation of the Company as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of CommonStock of the Company outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding Common Stock into which the outstanding shares of Common Stock shall have been subdivided or combined. The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument executed and mailed or delivered to the Holder, the obligation to deliver to the Holder such shares of stock securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to receive upon conversion of the Debenture. Section 5. NOTICE OF ADJUSTMENTS. Whenever the Conversion Price is adjusted as herin provided, the Company shall forthwith cause to be mailed to the Holder a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price. Section 6. COMPANY TO RESERVE COMMON STOCK: LISTING. The Company convenants that it will at all times reserve and keep available, free from preemptive rights, out og the aggregate of its authorized but unissued Common Stock or its issued Common Stock held in its treasury, or both, for the purpose of effecting conversions of the Debenture, the full number of shares of Common Stock then deliverable upon the conversion of the Debenture not theretofore converted; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Debenture, the Company will take such corporate action as may in the opinion of its counsel be necessary to increase its authorized but unissued Common Stock to such number of shares as shall be sufficient for that purpose. Section 7. TAXES ON CONVERSION. The Company will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Debenture pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of Common Stock in a name other than that of the holder of the Debenture to be converted, and nosuch issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or has established to the stisfaction of theCompany that such tax has been paid. Section 8. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of the shares of Common Stock issued or issuable upon the conversion of the Debenture in any manner which interferes with the timly conversion of the Debenture. Section 9. MANDATORY CONVERSION. Provided that the Common Stock shall be then listed for trading on the American Stock Exchange, the New York Stock Exchange, the National Association of Securities Dealers Automatic Quotation System, or another nationally recognized stock exchange resonably satisfactory to the Holder, and the Common Stock shall be regularly traded tereon, the Debenture shall be automatically converted into shares of the Common Stock on the Maturity Date, in the same manner and on the same terms as if the Holder shall have delivered a Conversion Notice to the Company in accordance swith Section 2 hereof on such date. Upon such conversion, the Company shall have no further obligations to the Holder under the Debenture. CONVERSION NOTICE To: Vermont Pure Holdings, Inc. The undersigned owner of this Debenture hereby exercises the option to convert this debenture or portion hereof below designated into shares of Common Stock of Vermont Pure Holdings, Inc. all in accordance with, and subject to, the terms of the Debenture, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned or, if so specified, to the person or entity named below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay any transfer taxes payable with respect thereto. Dated:____________________- If shares are to be issued other than the holder: _____________________ _____________________ __________________________ Name Signature _____________________ Address _____________________ Please Furnish Taxpayer Identification Number:_____________________ Portion to be converted: $________________ EX-23 8 EX 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT To the Board of Directors and Stockholders of Vermont Pure Holdings, Ltd. Randolph, Vermont We consent to the incorporation by reference in Registration Statement No. 33-95908 on Form S-8 of Vermont Pure Holdings, Ltd. of our report, dated December 22, 1999, appearing in the Annual Report on Form 10-K of Vermont Pure Holdings, Ltd. for the year ended October 30, 1999. FELDMAN SHERB HOROWITZ & CO. P.C New York, New York December 22, 1999
ITEM 9. FINANCIAL STATEMENTS Index to Financial Statements. Financial Statements: Page Independent Auditors Report F-2 Consolidated Balance Sheet F-3 Consolidated Statement of Operations F-4 Consolidated Statement of Changes in Stockholders Equity F-5 Consolidated Statement of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F-1
INDEPENDENT AUDITORS' REPORT To the Board of Directors Vermont Pure Holdings, Ltd. Randolph, VT 05060 We have audited the accompanying consolidated balance sheets of Vermont Pure Holdings, Ltd. and Subsidiaries as of October 30, 1999 and October 31, 1998, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended October 30, 1999, October 31, 1998 and October 25, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vermont Pure Holdings, Ltd. and Subsidiaries as of October 30, 1999 and October 31, 1998, and the results of their operations and their cash flows for the years ended October 30, 1999, October 31, 1998 and October 25, 1997 in conformity with generally accepted accounting principles. /s/ Feldman Sherb Horowitz & Co., P.C. Feldman Sherb Horowitz & Co., P.C. Certified Public Accountants New York, New York December 22, 1999 F-2
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 30, October 31, 1999 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash ............................................................ $ 367,018 $ 161,271 Accounts receivable ............................................. 3,525,238 3,069,699 Notes receivable ................................................ 975,000 -- Inventory ....................................................... 2,711,709 1,843,927 Current portion of deferred tax asset ........................... 601,922 330,000 Other current assets ............................................ 781,968 222,970 ------------ ------------ TOTAL CURRENT ASSETS .......................................... 8,962,855 5,627,867 ------------ ------------ PROPERTY AND EQUIPMENT - net of accumulated depreciation ....................... 11,122,258 9,174,063 ------------ ------------ OTHER ASSETS: Intangible assets - net of accumulated amortization ............. 10,443,207 9,595,915 Deferred tax asset .............................................. 3,182,914 1,661,000 Other assets .................................................... 122,996 114,658 ------------ ------------ TOTAL OTHER ASSETS ............................................ 13,749,117 11,371,573 ------------ ------------ TOTAL ASSETS ................................................................... $ 33,834,230 $ 26,173,503 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ................................................ $ 3,443,208 $ 3,007,630 Current portion of customer deposits ............................ 45,033 58,360 Accrued expenses ................................................ 851,371 1,104,871 Current portion of long term debt ............................... 1,414,930 601,570 Current portion of obligations under capital leases ............. 180,589 119,995 ------------ ------------ TOTAL CURRENT LIABILITIES ..................................... 5,935,131 4,892,426 Long term debt .................................................. 1,663,893 1,428,807 Long term obligations under capital leases ...................... 379,583 210,203 Line of credit .................................................. 11,689,792 8,783,793 Long term portion of customer deposits .......................... 684,334 893,145 ------------ ------------ TOTAL LIABILITIES ............................................. 20,352,733 16,208,374 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred stock - $.001 par value, 500,000 ...................... -- -- authorized shares, none issued and outstanding shares at October 30, 1999 Common stock - $.001 par value, 50,000,000 ...................... 10,340 10,288 authorized shares, 10,339,758 issued and outstanding shares at October 30, 1999 and 10,287,187 at October 31, 1998 Paid in capital ................................................. 23,197,724 23,080,049 Accumulated deficit ............................................. (9,557,817) (12,956,458) Treasury stock, at cost, 50,000 shares .......................... (168,750) (168,750) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY .................................... 13,481,497 9,965,129 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 33,834,230 $ 26,173,503 ============ ============
F-3 VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended -------------------------------------------- October 30, October 31, October 25, 1999 1998 1997 ------------ ------------ ------------ SALES .................................................... $ 31,396,375 $ 29,169,185 $ 17,685,442 COST OF GOODS SOLD ....................................... 11,742,003 11,549,871 7,643,908 ------------ ------------ ------------ GROSS PROFIT ............................................. 19,654,372 17,619,314 10,041,534 ------------ ------------ ------------ OPERATING EXPENSES: Selling, general and administrative expenses 13,149,023 10,235,168 5,897,735 Advertising expenses ....................... 3,257,918 4,702,498 3,077,145 Amortization ............................... 612,057 616,854 228,808 ------------ ------------ ------------ TOTAL OPERATING EXPENSES ................................. 17,018,998 15,554,520 9,203,688 ------------ ------------ ------------ INCOME FROM OPERATIONS ................................... 2,635,374 2,064,794 837,846 ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest - net ............................. (1,030,151) (755,326) (368,224) Miscellaneous .............................. -- 102,282 53,773 ------------ ------------ ------------ TOTAL OTHER EXPENSE ...................................... (1,030,151) (653,044) (314,451) ------------ ------------ ------------ INCOME BEFORE INCOME TAXES ............................... 1,605,223 1,411,750 523,395 INCOME TAX BENEFIT ....................................... 1,793,418 1,447,000 544,000 ------------ ------------ ------------ NET INCOME ............................................... $ 3,398,641 $ 2,858,750 $ 1,067,395 ------------ ------------ ------------ NET INCOME PER SHARE - BASIC ............................. $ 0.33 $ 0.28 $ 0.11 NET INCOME PER SHARE - DILUTED ........................... $ 0.31 $ 0.26 $ 0.11 ============ ============ ============ Weighted Average Shares Used in Computation - Basic ...... 10,279,377 10,248,389 9,771,347 Weighted Average Shares Used in Computation - Diluted .... 10,790,722 10,927,025 9,805,800 ============ ============ ============
F-4 VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Paid in Treasury Stock Accumulated -------------------------- -------------------- Shares Par Value Capital Shares Amount Deficit Total ----------- ---------- ------------- --------- --------- ------------- ------------ Balance, October 26,1996 .... 9,678,268 $ 9,678 $ 21,399,420 -- $ -- $ (16,882,603)$ 4,526,495 Issuance of Common Stock .... 453,712 454 1,047,672 1,048,126 Net Income .................. 1,067,395 1,067,395 ----------- ---------- ------------- --------- --------- ------------- ------------ Balance, October 25, 1997 ... 10,131,980 10,132 22,447,092 -- -- (15,815,208) 6,642,016 Issuance of Common Stock .... 155,207 156 632,957 633,113 Acquisition of Treasury Stock 50,000 (168,750) (168,750) Net Income .................. 2,858,750 2,858,750 ----------- ---------- ------------- --------- --------- ------------- ------------ Balance, October 31,1998 .... 10,287,187 10,288 23,080,049 50,000 (168,750) (12,956,458) 9,965,129 Issuance of Common Stock .... 52,571 52 117,675 117,727 Net Income .................. 3,398,641 3,398,641 ----------- ---------- ------------- --------- --------- ------------ ------------ Balance, October 30,1999 .... 10,339,758 $ 10,340 $ 23,197,724 50,000 $(168,750)$ (9,557,817) $ 13,481,497 =========== ========== ============= ========= ========= ============ ============
F-5
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended -------------------------------------------- October 30, October 31, October 25, 1999 1998 1997 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...................................................................... $ 3,398,641 $ 2,858,750 $ 1,067,395 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation .................................................................... 1,489,384 1,150,000 876,553 Amortization .................................................................... 612,057 616,854 228,808 (Increase) in deferred tax asset ................................................ (1,793,418) (1,447,000) (544,000) (Gain) loss on disposal of property and equipment ............................... 72,315 93,808 (38,948) Changes in assets and liabilities (net of effect of acquisitions): (Increase) in accounts receivable ........................................... (250,476) (985,349) (433,636) (Increase) in inventory ...................................................... (720,525) (783,421) (65,185) (Increase) Decrease in other current assets .................................. (558,998) 65,657 (87,311) (Increase) Decrease in other assets ......................................... (1,466,273) (567,567) 95,057 (Decrease) Increase in accounts payable ...................................... 435,578 1,768,238 (165,552) (Decrease) Increase in customer deposits ..................................... (225,038) (81,525) 58,127 (Decrease) Increase in accrued expenses ...................................... (253,500) 117,910 439,215 ------------ ------------ ------------ CASH PROVIDED BY OPERATING ACTIVITIES .............................................. 739,746 2,806,355 1,430,523 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment .................................... (2,115,945) (2,983,313) (1,079,569) Proceeds from sale of fixed assets ........................................... 113,752 67,000 103,531 Cash used for acquistions .................................................... (2,023,610) (4,458,889) (2,774,946) ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES .............................................. (4,025,803) (7,375,202) (3,750,984) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds (paydown) of line of credit ......................................... 2,905,999 843,979 (203,790) Proceeds from debt ........................................................... 1,278,420 11,233,158 2,531,978 Principal payment of debt .................................................... (780,355) (7,451,777) (697,000) Exercise of stock options .................................................... 87,740 -- -- Sale of common stock ......................................................... -- 10,950 -- ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 3,491,804 4,636,310 1,631,188 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH .................................................... 205,747 67,463 (689,273) CASH - Beginning of year ........................................................... 161,271 93,808 783,081 ------------ ------------ ------------ CASH - End of year ................................................................ $ 367,018 $ 161,271 $ 93,808 ============ ============ ============ Cash paid for interest ............................................................. $ 852,638 $ 755,326 $ 422,026 ============ ============ ============ NON-CASH FINANCING AND INVESTING ACTIVITIES: Equipment acquired under capital leases .............................. $ 212,315 $ 89,273 $ 81,392 ============ ============ ============
F-6 VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. BUSINESS OF THE COMPANY Vermont Pure Holdings, Ltd. (the "Company") is engaged in the bottling, marketing and distribution of natural spring water. The Company's products are sold predominately in the New England, New York and New Jersey as well as Mid-Atlantic and Mid-Western states. Distribution is accomplished through a network of independent beverage distributors and with the Company's own trucks and employees. 2. SIGNIFICANT ACCOUNTING POLICIES A. BASIS OF PRESENTATION - The consolidated financial statements include the accounts of the Company and its subsidiaries, Vermont Pure Springs, Inc., A.M Friday's, Inc., Excelsior Springs Water Co., Inc and Adirondack Coffee Services, Inc. The Company's subsidiaries are wholly-owned. All material intercompany profits, transactions, and balances have been eliminated. There are no material intercompany transactions. B. FISCAL YEAR - The Company operates on a "52-53 week" reporting year. Fiscal year ended October 30, 1999 had 52 weeks in it while fiscal year ended October 31, 1998 had 53 weeks. C. CASH EQUIVALENTS - The Company considers all highly liquid temporary cash investments, with an original maturity of three months or less when purchased, to be cash equivalents. D. ACCOUNTS RECEIVABLE - Accounts receivable are presented net of allowance for doubtful accounts. The allowance was $348,167 and $307,020 at October 30, 1999 and October 31, 1998, respectively. Amounts charged to expense were $187,113, $192,527 and $57,809 respectively, during the years ended October 30, 1999, October 31, 1998 and October 25, 1997. E. INVENTORIES - Inventories consist primarily of the packaging material, labor and overhead content of the Company's products. Such inventories are stated at the lower of cost or market using average costing. F. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, which range from three to ten years for equipment, and from ten to forty years for buildings and improvements. F-7 G. INTANGIBLE ASSETS - The Company records goodwill in connection with its acquisitions. Goodwill is amortized over 30 years. The value of customer lists acquired is amortized over 3 years and the value of covenant agreements not to compete are amortized over the term of the agreements. H. SECURITIES ISSUED FOR SERVICES - The Company accounts for stock and options issued for services by reference to the fair market value of the Company's stock on the date of stock issuance or option grant. Compensation expense is recorded for the fair market value of the stock issued, or in the case of options, for the difference between the stock's fair market value on the date of grant and the option exercise price. In the event that recipients are required to render future services to obtain the full rights in the securities received, the compensation expense so recorded is deferred and amortized as a charge to income over the period that such rights vest to the recipient. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No.123"), "Accounting for Stock Based Compensation". SFAS No.123 permits companies to choose to follow the accounting prescribed by SFAS No. 123 for securities issued to employees, or to continue to follow the accounting treatment prescribed by Accounting Principles Board Opinion No.25 ("APB No.25") along with the additional disclosure required under SFAS NO.123 if the Company elects to continue to follow APB No.25. The Company has adopted the disclosure only option of SFAS 123. I. NET INCOME PER SHARE - Net Income Per Share is based on the weighted average number of common shares outstanding during each period. Potential common shares are included in the computation of diluted per share amounts outstanding during each period. J. ADVERTISING EXPENSES - The Company expenses advertising costs at the time that the advertising begins to run. K. SLOTTING FEES - Slotting fees are paid to individual supermarkets and supermarket chains to obtain initial shelf space for new products. Fees vary from store to store. The payment of slotting fees does not guarantee that a company's product will be carried for any definite period of time. The Company pays for such fees in cash, providing free goods or issuing credits for previously sold goods. The cost of the slotting fees is valued at the amount of cash paid, or the cost to the Company of the goods provided in exchange. The Company expenses slotting fees when the obligation is incurred. L. CUSTOMER DEPOSITS - Customers receiving home or office delivery of water pay a deposit for the water bottle on receipt that is refunded when it is returned. The Company uses an estimate (based on historical experience) of the deposits it expects to return over the next 12 months to determine the current portion of the liability and classifies the balance as long term. F-8 M. INCOME TAXES - The Company accounts for income taxes under Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes" (SFAS 109). Pursuant to SFAS 109, the Company accounts for income taxes under the liability method. Under the liability method, a deferred tax asset or liability is determined based upon the tax effect of the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted rates which will be in effect when these differences reverse. N. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. O. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts reported in the balance sheet for cash, trade receivables, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. The carrying amount of the Company's borrowings approximate fair value. P. ACCOUNTING FOR LONG-LIVED ASSETS - The Company reviews long-lived assets, certain identifiable assets and any goodwill related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. At October 30, 1999, the Company believes that there has been no impairment of its long-lived assets. 3. PROPERTY AND EQUIPMENT October 30, October 31, Life 1999 1998 Land, buildings, and improvements.......10 - 40 yrs. $ 3,624,258 $ 3,458,986 Machinery and equipment.... .............3 - 10 yrs. 11,741,545 7,519,572 Equipment held under capital leases .....3 - 10 yrs. 786,776 1,812,116 ---------- --------- 16,152,579 12,790,674 Less accumulated depreciation............ 5,030,321 3,616,611 ---------- --------- $11,122,258 $9,174,063 ========== ========= F-9 4. INTANGIBLE ASSETS October 30, October 31, Life 1999 1998 ------ ----------- ----------- Goodwill 30 yrs. $ 10,933,826 $ 9,585,384 Covenants not to compete 5 yrs. 498,412 498,412 Customer lists 3 yrs. 946,535 772,566 Other Various 103,717 166,780 ----------- ----------- $ 12,482,490 $11,023,142 Less accumulated amortization 2,039,283 1,427,227 ----------- ----------- $ 10,443,207 $ 9,595,915 =========== =========== 5. ACQUISITIONS The Company completed the following acquisitions in fiscal year 1999: Russell Distributing in November 1998, Roblee Water Works in January 1999, L&C Spring Water in March 1999, Waters of Sand Springs in April 1999, Ravenwood Spring Water Co. in June 1999, Adirondack Coffee Service, Inc. in July 1999, Dunbar Coffee Service in July 1999, Coratti Water Group, Ltd.'s Connecticut home and office customer base in August 1999 and Absolute Coffee Break in August 1999. The following table gives an aggregate summary of the acquisitions: 1999 1998 ------------ ------------ Purchase Price .......................... $ 2,446,282 $ 5,143,935 Acquisition Costs ....................... 26,062 323,418 Fair Value of Assets Acquired ........... (1,195,022) (1,540,495) Fair Value of Liabilities Assumed ....... 49,623 498,821 ------------ ------------ Goodwill ................................ $ 1,326,945 $ 4,425,679 ============ ============ The detailed components consist of the following: 1999 1998 ------------ ------------ Purchase Price Cash to Sellers .................................. $ 1,997,548 $ 4,114,822 Notes to Sellers ................................. 418,734 396,000 Common Stock to Sellers (8,571 shares in 1999 and 155,207 in 1998) ........................ 30,000 633,113 ------------ ------------ $ 2,446,282 $ 5,143,935 ============ ============ F-10 1999 1998 ------------ ------------ FAIR VALUE OF ASSETS ACQUIRED Accounts Receivable .............................. $ 205,063 $ 109,584 Inventory ..................................... 147,257 82,033 Property, Plant and Equipment .................... 662,448 699,128 Intangible Assets ................................ 178,840 541,590 Other ............................................ 1,414 108,160 ------------ ------------ $ 1,195,022 $ 1,540,495 ============ ============ LIABILITIES ASSUMED Accounts Payable ................................. $ 0 $ 140,298 Customer Deposits ................................ 2,900 222,937 Assumed Notes .................................... 37,910 135,586 Other ............................................ 8,813 0 ------------ ------------ $ 49,623 $ 498,821 ============ ============ During fiscal year 1999, the Company issued 8,571 shares of its common stock as follows: - 8,571 shares were issued in November 1998 at the price of $3.50 per share in conjunction with the purchase of assets from Russell Distributing. During fiscal year 1998, the Company issued 155,207 shares of its common stock as follows: 45,391 shares were issued in January 1998 at the price of $4.00 in conjunction with the purchase of assets from Vermont Coffee Time; 7,647 shares were issued at the price of $4.50 in conjunction with the purchase of Vermont Naturals in May 1998; 30,000 shares were issued in exchange for distribution rights obtained from AKVA at a value of $4.28; 72,169 shares were issued in April 1998 at the price of $4.00 per share to AM Fridays in conjunction with the sales performance portion of the original stock purchase agreement. The following table summarizes pro forma consolidated results of operations (unaudited) of the Company and the 1999 and 1998 acquisitions as though the acquisitions had been consummated at October 25, 1997. The pro forma amounts give effect to the appropriate adjustments for the fair value of assets acquired and amortization of goodwill, depreciation and the debt incurred and resulting interest expense. F-11 Years Ended October 30, October 31, 1999 1998 ------------ ------------ Total Revenue ............................ $32,594,417 $32,813,514 Net Income ............................... $ 3,843,705 $ 3,478,362 Net Income Per Share .................... $ 0.37 $ 0.34 Weighted Average Number Of Shares ........ 10,279,377 10,248,389 ============ ============ 6 ACCRUED EXPENSES October 30, October 31, 1999 1998 ------------ ------------ Advertising and promotion ................ $ 130,000 $ 310,558 Payroll and vacation ..................... 206,018 380,844 Miscellaneous ............................ 515,353 413,469 ------------ ------------ $ 851,371 $ 1,104,871 ============ ============ 7. LINE OF CREDIT - ACQUISITIONS AND WORKING CAPITAL - The Company entered into a five year revolving line with CoreStates Banks N.A., now First Union National Bank, on April 18, 1998. The purpose of the loan is for permitted acquisitions and capital expenditures, working capital and to refinance existing term debt. The Company is entitled to borrow up to $15 million under the terms and conditions of the agreement. Of this amount, $3 million is allowed for working capital with the balance available for acquisitions. The Company has signed a letter of intent with First Union National Bank to increase this credit line up to $25 million. Of the $25 million, $4.3 million will be allocated for a letter of credit to underwrite a new bond issue for the Randolph, Vermont building expansion as well as new production equipment purchases. As of October 30, 1999 $11,689,792 had been borrowed against this facility. The proceeds were used for working capital and acquisition debt. Under the agreement the Company is required to pay interest monthly at a rate of LIBOR plus 2.5%, currently approximately 8.4%. The interest rate can decrease during the term based on certain performance parameters as defined in the agreement. The Company is required to continue to meet loan covenants as defined in the agreement in order to have access to the line of credit. The loan is secured by receivables, inventory, equipment and intangible assets. 8. OBLIGATIONS UNDER CAPITAL LEASES The Company leases equipment under capital lease arrangements. Assets held under capital leases are included with property and equipment. F-12 The following is a schedule of future minimum lease payments under the capital leases and the present value of net minimum lease payments as of October 30,1999: 2000 .................................. $215,925 2001 .................................. 172,923 2002 .................................. 135,253 2003 .................................. 57,949 2004 AND BEYOND ....................... 77,174 -------- Total minimum lease payments .......... 659,224 LESS AMOUNT REPRESENTING INTEREST ..... 99,052 -------- Present value of minimum lease payments $560,172 ======== 9. LONG TERM DEBT - The Company's long term debt is as follows:
October 30, October 31, 1999 1998 ------------ ------------ Mortgage on property purchased in June 1999, interest at .5% over prime, currently 8.25% to be revised annually, principal and interest payable monthly through 2014, secured by property........................ $ 198,182 - Building loans, principal and interest at 5.5% payable monthly through 1999 secured by the assets............... - 291,807 Mortgage on property acquired in October 1993, interest at 4.5%, with interest only due through July 1996, then principal and interest due through 2000 secured by the property............................. 318,341 348,066 Promissory note, principal and interest at 8.5% payable monthly through May 2002 with a final payment of $140,099 due June 2002. Note is unsecured............... 235,011 265,429 Promissory note, principal and interest at 8.5% payable monthly through August 2002, with a final payment of $308,474 due September 2002. Note is unsecured.......... 430,782 464,469 Promissory note, principal and interest at 8% payable monthly through August 2004. Note is unsecured.......... 295,439 - Various secured/unsecured notes ranging in amounts of $14,000 to $975,000 with interest rates of 8.5% to 10%. These notes are for the most part unsecured........ 1,601,068 660,606 ------------ ------------ 3,078,823 2,030,377 Less current portion....................................... 1,414,930 601,570 ------------ ------------ $ 1,663,893 $ 1,428,807 ============ ============ F-13
Annual maturities of long term debt are as follows: Year ending October 28, 2000 .............. $1,414,930 Year ending October 27, 2001 .............. 259,039 Year ending October 26, 2002 .............. 687,786 Year ending October 25, 2003 .............. 136,692 YEAR ENDING OCTOBER 24, 2004 AND THEREAFTER 580,376 ---------- $3,078,823 ========== 10. PERFORMANCE EQUITY PLANS In November 1993, the Company's Board of Directors adopted the 1993 Performance Equity Plan (the "1993 Plan"). The plan authorizes the granting of awards for up to 1,000,000 shares of common stock to key employees, officers, directors and consultants. Grants can take the form of stock options (both qualified and non-qualified), restricted stock awards, deferred stock awards, stock appreciation rights and other stock based awards. During fiscal 1999, there were no options issued under this plan. On April 2, 1998 the Company's shareholders approved the 1998 Incentive and Non Statutory Stock Option Plan. This plan provides for issuance of up to 500,000 options to purchase the Company's common stock under the administration of the Board of Directors. The intent of the plan is to reward options to officers, employees, directors, and other individuals providing services to the Company. During fiscal 1999, 48,200 options were issued under this plan. F-14 11. STOCK OPTIONS The following table illustrates the Company's stock option issuances and balances during the last three fiscal years: Exercise Price Per OPTIONS SHARE ---------- ----------- Outstanding at October 26, 1996 ........... 1,755,000 $2.25-3.13 Options granted ...................... 392,187 $2.50-2.81 Options regranted .................... 647,000 $ 2.50 Options retired ...................... (32,000) $1.81-2.25 Options surrendered .................. (580,000) $1.75-3.25 ---------- ----------- Outstanding at October 25, 1997 ........... 2,182,187 $1.75-6.00 Options granted ...................... 202,000 $3.38-4.81 Options retired ...................... (10,000) $ 2.50 Options exercised .................... (5,000) $ 2.50 ---------- ----------- Outstanding options at October 31, 1998 ... 2,369,187 $1.81-6.00 Options Granted .................... 48,200 $ 3.13 Options Retired .................... (540,000) $2.50-6.00 OPTIONS EXERCISED .................. (36,000) $2.25-2.50 ---------- ----------- Outstanding Options at October 30, 1999 .............. 1,841,387 $1.81-4.81 ========== =========== There were 1,485,000, 1,742,000 and 1,612,000 options exercisable for fiscal years ending October 30, 1999, October 31, 1998 and October 25, 1997, respectively. 12. OPERATING LEASES The Company currently leases office space on a month-to-month basis and is obligated under several building, equipment and vehicle leases expiring variously through May 2008. Future minimum rental payments over the terms of these leases are approximately as follows: 2000 $801,745 2001 705,357 2002 631,882 2003 550,388 Thereafter 755,705 Rent expense under all operating leases was $413,217, $321,116 and $128,247 for fiscal years ending October 30, 1999, October 31, 1998 and October 25, 1997. F-15 . 13. RELATED PARTY TRANSACTIONS The Company paid consulting fees to related parties aggregating $22,000 in 1999, $78,334 in 1998 and $136,000 in 1997. One of the consultants also received options to purchase 125,000 shares of the Company's common stock for $2.25 per share. The options are fully vested and are exercisable through October 2003. 14. INCOME TAXES The Company has approximated $13.1 million of available loss carryforwards at October 30, 1999 expiring from 2005 through 2011. Due to previous ownership changes or equity structure shifts as defined in the Internal Revenue Code, approximately $3.5 million of the net operating losses are limited as to annual utilization The major deferred tax asset (liability) items at October 30, 1999 are as follows: Accounts receivable allowance .. $ 139,000 Amortization ................... 225,000 Depreciation ................... (919,000) Slotting fees .................. 10,000 Other .......................... 95,000 Net operating loss carryforwards 5,067,000 ----------- 4,617,000 Valuation allowance 832,000 ----------- Deferred tax asset recorded .... $ 3,785,000 =========== The benefit for income taxes differs from the amount computed by applying the statutory tax rate to net income before income tax benefit as follows:
Year Ended ----------------------------------------- October 30, October 31, October 25, 1999 1998 1997 Income tax expense computed at ------------ ------------ ------------ statutory rate..................................$ (546,000) $ (480,000) $ (178,000) Effect of permanent differences ................. (7,000) (74,000) (18,000) Effect of temporary differences ................. 115,000 (101,000) 40,000 Tax benefit of net operating loss carry forward . 438,000 655,000 156,000 Change in valuation allowance ................... 1,793,000 1,447,000 544,000 ------------ ------------ ------------ Income tax benefit..............................$ 1,793,000 $ 1,447,000 544,000 ============ ============ ============
F-16 15. MAJOR CUSTOMER The Company's sales to a single customer were 16%, 30% and 31% of the total sales for 1999, 1998 and 1997, respectively. However, the Company terminated its distribution agreement with this customer effective April, 1999. The Company has entered into contracts with distributors to market Vermont Pure spring water in the territory previously serviced by the former customer. 16. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation expense related to stock option grants was recorded in 1999, 1998 and 1997 as the exercise price of such options was equal to or greater than the underlying stock on the date of grant. Pro-forma information regarding net income and net income per share is presented below as if the Company had accounted for its employee stock options under the fair value method; such pro-forma information is not necessarily representative of the effects on reported net income for future years due primarily to the options vesting periods and to the fair value of additional options in future years. Had compensation cost for the option plans been determined using the methodology prescribed under the Black-Scholes option pricing model, the Company's income (loss) would have been $3,307,489 and $.32 per share in 1999; $2,509,134 and $.24 per share in 1998 and $324,302 and $.03 per share in 1997. The weighted average fair value of the options granted were $2.11, $3.42 and $1.89 in 1999, 1998 and 1997, respectively. Assumptions used for 1999 were: expected dividend yield of 0%; expected volatility of 79%; risk free interest of 5.7% and expected life of 5 years. Assumptions used for 1998 were: expected dividend yield of 0%; expected volatility of 50%; risk free interest of 5.7% and expected life of 5 years. Assumptions for 1997 were: expected dividend yield 0%; expected volatility of 92%; risk-free interest of 7% and expected life of five years. 17. SUBSEQUENT EVENT On October 1, 1999, the Company acquired various security interests held by Marcon Capital Corporation associated with Pristine Mountain Springs, Inc., ("Pristine") and Amsource Limited Liability Company ("Amsource"). The Company has historically purchased spring water from Pristine. F-17 Following notice of the assignment, Amsource and Pristine contended that the Company did not have to right to purchase water from Pristine. The Company filed litigation through three separate actions to foreclose its security interests against Pristine and Amsource, exercise control over Amsource, and specifically enforce its rights to purchase water from Pristine. The parties have reached a settlement that resulted in the dismissal of all pending litigation. Under the settlement, the Company received a cash settlement of $1,270,000 and retained the right to purchase water from Pristine's spring in Stockbridge, and the right of first refusal to purchase the spring itself. By virtue of the settlement, the Company has secured a legal right to a water supply from the Pristine spring. The settlement has concluded all litigation among the parties. F-18 EX-27 9 FDS --
5 (Replace this text with the legend) 0000885040 VERMONT PURE. INC. 1 U.S.DOLLARS 12-MOS OCT-31-1999 NOV-01-1998 OCT-31-1999 1 367,108 0 3,873,405 (348,167) 2,711,709 8,962,855 16,152,579 (5,030,321) 33,834,230 5,935,131 0 0 0 10,340 13,471,157 33,834,230 31,396,375 31,396,375 11,742,003 11,742,003 17,018,998 0 1,030,151 1,605,223 (1,793,418) 3,398,641 0 0 0 3,398,641 0.33 0.31
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